Spatial Heterogeneity in Stated Preference Valuation: Status, Challenges and Road Ahead

Abstract

This paper reviews the progress made over the past few years in evaluating and controlling for spatial heterogeneity in stated preference valuation, focussing on applications to environmental valuation. Spatial heterogeneity can strongly impact value estimates, so failure to account for it can compromise their validity and reliability. Incorporating spatial factors into valuation studies not only helps to control for some potential biases, but also produces more precise evaluation of amenities that have mixed use and non-use values. For these reasons and considering the ever-growing need for non-market valuation studies, spatial heterogeneity deserves more attention in the stated preference valuation literature. In this review we discuss the current state-of-knowledge and identify some of the main issues that have been raised in the literature in relation to spatial heterogeneity in stated preference valuation, including distance-decay, substitution, embedding effects and scale factors. We present several techniques that have been used so far, mostly originating from spatial econometrics and spatial statistics, to control for spatial heterogeneity. Some of the ongoing challenges that require further attention are also highlighted. We conclude by suggesting potential directions for future research in light of recent progress made in related disciplines and the evolution of modern technologies.