testing the effect of multiple substitutes and distance decay
Costs and benefits of water restoration projects are not necessarily evenly spread out over the entire area affected by the project. The physical distribution of benefits is, therefore, an important parameter when conducting economic analyses of water restoration projects. Two particularly relevant spatial issues relate to 1) the location of the population relative to the location of the waterbody, and 2) the availability and characteristics of substitute water bodies. Based on a contingent valuation (CV) study of the demand for restoring Odense River in Denmark a spatial demand model which accounts for travel time both to the river subject for valuation and to potential substitute sites is estimated. It is concluded that the spatial distribution of benefits is unlikely to be homogeneously determined by a one-dimensional spatial model. Moreover, the results suggest that the effect of spatial issues on preferences varies between users and non-users. For non-users the spatial impacts from potential substitutes significantly reduce demand for improvements in Odense River. This indicates that focus on estimation of distance decay effects may be an important tool in relation to ensuring proper geographical delimitation of the population in a given context.
Ecological Economics, 2013, Vol 92, Issue 8, p. 58-66