Substitution patterns across alternatives as a source of preference heterogeneity in recreation demand models

Abstract Recent stated choice studies have shown that, in a context of inter-alternative correlation, individuals can assess alternatives differently. This asymmetry in perception between alternatives with different levels of substitutability becomes one additional, but usually overlooked, source of observed preference heterogeneity. In the context of beach recreation in Mallorca, Spain, this paper extends the investigation on this source of heterogeneity to a revealed preference setting. While the substitution pattern existent across sites is accounted for by means of a nested logit model, nest-specific coefficients are estimated to evaluate the utilities associated with different groups of sites. The results provide empirical evidence to suggest that substitution patterns across alternatives are a statistically significant source of influence on preference heterogeneity leading to different marginal sensitivities for a number of site attributes.