Economic impacts of noxious facilities: Incorporating the effects of risk aversion

Developing new sites for noxious facilities has become a complex process with many potential pitfalls. In addition to the need to negotiate conditions acceptable to the host community, siting success may depend on the facility proposer`s ability to identify a candidate site that not only meets technical requirements, but that is located in a community or region whose population is not highly averse to the risks associated with the type of facility being proposed. Success may also depend on the proposer accurately assessing potential impacts of the facility and offering an equitable compensation package to the people affected by it. Facility impact assessments, as typically performed, include only the effects of changes in population, employment and economic activity associated with facility construction and operation. Because of their scope, such assessments usually show a short-run, net economic benefit for the host region, making the intensely negative public reaction to some types and locations of facilities seem unreasonable. The impact component excluded from these assessments is the long-run economic effect of public perceptions of facility risk and nuisance characteristics. Recent developments in psychological and economic measurement techniques have opened the possibility of correcting this flaw by incorporating public perceptions in projections of economic impacts from noxious facilities