Available with Spatial Analyst license.
Inverse distance weighted (IDW) interpolation determines cell values using a linearly weighted combination of a set of sample points. The weight is a function of inverse distance. The surface being interpolated should be that of a locationally dependent variable.
This method assumes that the variable being mapped decreases in influence with distance from its sampled location. For example, when interpolating a surface of consumer purchasing power for a retail site analysis, the purchasing power of a more distant location will have less influence because people are more likely to shop closer to home.
Controlling the influence with the Power parameter
IDW relies mainly on the inverse of the distance raised to a mathematical power. The Power parameter lets you control the significance of known points on the interpolated values based on their distance from the output point. It is a positive, real number, and its default value is 2.
By defining a higher power value, more emphasis can be put on the nearest points. Thus, nearby data will have the most influence, and the surface will have more detail (be less smooth). As the power increases, the interpolated values begin to approach the value of the nearest sample point. Specifying a lower value for power will give more influence to surrounding points that are farther away, resulting in a smoother surface.
Since the IDW formula is not linked to any real physical process, there is no way to determine that a particular power value is too large. As a general guideline, a power of 30 would be considered extremely large and thus of questionable use. Also keep in mind that if the distances or the power value are large, the results may be incorrect.
An optimal value for the power can be considered to be where the minimum mean absolute error is at its lowest. The ArcGIS Geostatistical Analyst provides a way to investigate this.
Limiting the points used for interpolation
The characteristics of the interpolated surface can also be controlled by limiting the input points used in the calculation of each output cell value. Limiting the number of input points considered can improve processing speeds. Also consider that input points far away from the cell location where the prediction is being made may have poor or no spatial correlation, so there may be reason to eliminate them from the calculation.
You can specify the number of points to use directly, or specify a fixed radius within which points will be included in the interpolation.
Variable search radius
With a variable search radius, the number of points used in calculating the value of the interpolated cell is specified, which makes the radius distance vary for each interpolated cell, depending on how far it has to search around each interpolated cell to reach the specified number of input points. Thus, some neighborhoods will be small and others will be large, depending on the density of the measured points near the interpolated cell. You can also specify a maximum distance (in map units) that the search radius cannot exceed. If the radius for a particular neighborhood reaches the maximum distance before obtaining the specified number of points, the prediction for that location will be performed on the number of measured points within the maximum distance. Generally, you will use smaller neighborhoods or a minimum number of points when the phenomenon has a great amount of variation.
Fixed search radius
A fixed search radius requires a neighborhood distance and a minimum number of points. The distance dictates the radius of the circle of the neighborhood (in map units). The distance of the radius is constant, so for each interpolated cell, the radius of the circle used to find input points is the same. The minimum number of points indicates the minimum number of measured points to use within the neighborhood. All the measured points that fall within the radius will be used in the calculation of each interpolated cell. When there are fewer measured points in the neighborhood than the specified minimum, the search radius will increase until it can encompass the minimum number of points. The specified fixed search radius will be used for each interpolated cell (cell center) in the study area; thus, if your measured points are not spread out equally (which they rarely are), there are likely to be different numbers of measured points used in the different neighborhoods for the various predictions.
Using barriers
A barrier is a polyline dataset used as a breakline that limits the search for input sample points. A polyline can represent a cliff, ridge, or some other interruption in a landscape. Only those input sample points on the same side of the barrier as the current processing cell will be considered.
References
Philip, G. M., and D. F. Watson. "A Precise Method for Determining Contoured Surfaces." Australian Petroleum Exploration Association Journal 22: 205–212. 1982.
Watson, D. F., and G. M. Philip. "A Refinement of Inverse Distance Weighted Interpolation." Geoprocessing 2:315–327. 1985.