Substitution effects in spatial discrete choice experiments

This paper explores spatial substitution patterns using a choice experiment to estimate the non-market benefits of environmental quality improvements at different sites presented as labelled alternatives. We develop a novel modelling approach to estimate possible disproportional substitution patterns among these alternatives by including cross-effects in site-specific utility functions, combining mixed and universal logit models. The latter model allows for more flexibility in substitution patterns than random parameters and error-components in mixed logit models. The model is relevant to any discrete choice study that compares multiple sites that vary in their comparability and that may be perceived as (imperfect) substitutes. Applying the model in an empirical case study shows that accounting for cross-effects results in a better model fit. We discuss the validity of welfare estimates based on the inclusion of cross-effects. The results demonstrate the importance of accounting for substitution effects in spatial choice models with the aim to inform policy and decision-making.