The hedonic pricing method
The hedonic pricing method (HPM) takes account of the value that consumers place on environmental attributes only insofaras they enter into product prices or are capitalized into land and property values, i.e. captured internalized benefits. Its validity in the context of environmental issues in tourism therefore depends on the extent to which the price of the tourism product is determined by the attributes of its environmental components, for example the quality of the attributes of facilities or attractiveness and cultural associations of historic buildings. As shown in chapter 2 and 3, and the references given there, it has been incorporated into the determinants of the demand for tourism. Even if such environmental attributes are embodied in market prices, the only ones HPM captures, the technique is neither suitable for the consideration of option, existence or bequest values, nor does it incorporate non-market benefits enjoyed by visitors. Thus, this feature indicate that the estimates emerging from the method give rise to gross under-valuations of the environment or historic conservation elements of the tourism product. Nevertheless, its advocates assert that it is acceptable from an economic standpoint because of its rigour, reliability and robustness.
The presence of market segmentation, which is widely ignored or over-looked in the application of HPM to property values, is a significant aspect of tourism. For example, even within seemingly homogeneous tourism markets, such as those for packaged summer sun holidays, there is segmentation by such variables as price, quality, destination and accessibility. The HPM must acknowledge such segmentation and estimate separate equations for each segment. These are viewed as serious drawbacks at a technical level and impair the confidence that can be placed in the results. The HPM requires data on a wide range of variable. Much of such data is not available in a suitable secondary form, thus necessitating its collection from primary research, making it a costly method.