This morning the School of Economics was lucky to receive Prof Peter Nijkamp of the Vrije Universiteit, Amsterdam for a guest lecture. Prof Nijkamp is in Potchefstroom as part of an external evaluation of the University’s research efforts, but he made time to speak to fellow economists and students.
He explained that cities, regions or countries across the world have a bounty of cultural heritage, often under pressure from development. He started with the example of the village of Hasankeyf in Turkey. It is a historic site with archeological value, but this year it will be flooded by the water of a nearby hydro-electrical project. Historians argue that its value is immense and the loss a disaster, but how can economists value this loss? The town’s cultural heritage did attract tourists and generate income, but how can this be measured to become part of a sensible cost-benefit analysis?
Prof Nijkamp outlined the different methods that are in use:
- Market-based: Hedonic pricing method (HPM)
- Market-based: Attraction force visitors (TCM)
- Market-based: Shadow compensation
- Market-based: Insurance value
- Psychology: Willingness to pay (CVM)
- Expert opinion: value function
- Ecology/History: Infinite value
- Banking perspective: Compound interest
He emphasised that these are all valid methods, but they often yield very different results and disagreements amongst economists makes it difficult to convince policymakers.
He argued in favour of the Hedonic Pricing Method, asking: why should we not believe the market? His evidence of the application of the method is a case study in Zaanstad in the Netherlands. The analysis examined the spillovers in value from heritage buildings to other property prices. There can be an influence on price if the building has monument status, there could be a proximity effect or an urban ensemble effect. HPM was used with spatial econometrics. The results showed that heritage builds add a premium of 25% to property prices in Zaanstad.
Prof Nijkamp finished with some challenges for future research in this area. It includes the cost of GIS micro databases, dealing with the heterogeneity of cultural heritage and measuring cultural capital.