Estimation of Distance-Decay Functions to Account for Substitution and Spatial Heterogeneity in Stated Preference Research

In a site-selection choice experiment various hypotheses are tested related to spatial heterogeneity in willingness to pay (WTP) for environmental improvements. Spatial heterogeneity is measured through distance-decay effects, substitute sites inside and outside the experiment’s choice set, and spatial trend variables. We demonstrate that distance-decay functions differ between users and nonusers and across study sites. Also the distance to substitutes outside the choice set explains spatial variation in WTP. We show that further extending the model with spatial trend variables reveals additional spatial heterogeneity in choices. Accounting for spatial heterogeneity patterns results in significantly different WTP estimates for environmental improvements. (JEL Q25, Q51)