In the last episode of Marrying Cost-Benefit Analysis with BIM (CBA-BIM) I introduced the concept and talked about the benefits of CBA-BIM. The meat of CBA-BIM is the linking of geography and economics.

Distance decay functions – Linking Economics and Geography

Willingness to pay distance decay functions are a critical link in the CBA-BIM story. They link how much people value infrastructure (and the benefits infrastructure brings – such as clean water and habitat for wildlife) based on distance, use and income.

Clean Water – 10/10

In geographical-based business case analysis we want to know which location for infrastructure will generate the most use and how it may be useful or harmful in addressing social equity.

“Our main conclusion is that distance decay relationships may well prove very useful in applied valuation work, since they provide a natural way of conceptualising the question ‘who benefits?’”[1]

Distance decay functions link the economic concept of willingness to pay (WTP) with geographical information systems. Typically, WTP is assumed to be invariant to distance within some arbitrary area (usually the area for which a survey of WTP was done) and that it is zero outside of this area (example). A more likely state of affairs would be that as you get further from an amenity you are willing to pay less for it since it will cost you more in travel time, and transportation costs, to get there (example). Also there is evidence that people may value not just the use of the amenity but also the option to use it as well. In addition they may value the bequest of a public good or service to future generations or perhaps, although they will never travel to use the amenity and so distance doesn’t matter, it is important to them that others have access.

WTP to see a Heron and Canada Geese on the Wing vs. Knowing They are There?

These arguments and findings suggest there are probably a couple of factors that need to be considered when linking economic WTP with a GIS. WTP will likely decrease as distance increases. But there may also be some value (bequest or altruistic value) that it unrelated to distance. A WTP distance decay function would therefore be a negatively-sloped relationship between WTP and distance. It could be linear (decreasing to zero at some distance) or non-linear (allowing for people far away from the facility to value it)[2].

Meta-analysis results that show that users are likely to pay more than non-users regardless of distance. Also people are willing to pay more for big changes over small[3]:

To Come …

In the next posts I’ll look at:

1. An Example: Transit Infrastructure and Social Equity; and,
2. CBA-BIM for Informed, Socially Equitable, and Defensible Sustainable Infrastructure & Resiliency Decisions

^[1]“Aggregating the benefits of environmental improvements: distance-decay functions for use and non-use values”, Hanley, Schläpfer, Spurgeon, Journal of Environmental Management 68, 297–304, 2003 [Link]

[2] Example uses values from a hypothetical WTP by households to close a quarry in a nearby national park: “Valuing Environmental Impacts: Practical Guidelines for the Use of Value Transfer in Policy and Project Appraisal – Case Study 7 – Using GIS in Valuing Ecosystem Impacts” Department for Environment, Food and Rural Affairs (eftec) U.K. Government (2010) [Link]

^[3] “The Aggregation of Environmental Benefit Values: A Spatially Sensitive Valuation Function Approach” by Ian Bateman, Stavros Georgiou, Iain Lake CSERGE Working Paper EDM 05-04, 2001 [Link]