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Valuation 9: Travel cost model

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Simple zonal travel cost approach. Individual travel cost approach. Random utility approach ... Zonal travel cost method trips to one site by classes of people ... – PowerPoint PPT presentation

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Title: Valuation 9: Travel cost model


1
Valuation 9 Travel cost model
  • A simple travel cost model of a single site
  • Multiple sites
  • Implementation
  • The zonal travel cost method
  • The individual travel cost model
  • Travel cost with a random utility model

2
Last week
  • Revealed preference methods
  • Defensive expenditures
  • Damage costs
  • Defensive expenditures A simple model
  • An example Urban ozone

3
Travel cost model
  • Most frequently applied to valuation of natural
    environments that people visit to appreciate
  • Recreation loss due to closure of a site
  • Recreation gain associated with improved quality
  • Natural areas seldom command a price in the
    market
  • Basic premise time and travel cost expenses
    represent the price of access to the site
  • WTP to visit the site
  • Travel is a complement to recreation

4
Travel cost model 2
  • Application of TCM
  • Reservoir management, water supply, wildlife,
    forests, outdoor recreation etc.
  • History Harold Hotelling 1947
  • Value of national parks
  • Variations of the method
  • Simple zonal travel cost approach
  • Individual travel cost approach
  • Random utility approach

5
A simple model of a single site
  • A single consumer and a single site
  • The park has the quality q
  • higher qs are better
  • Consumer chooses between visit to the park (v)
    and market goods (x)
  • He works for L hours at a wage w and has a total
    budget of time T
  • He spends p0 for the single trip
  • The maximisation problem is

6
A simple model (2)
  • The maximisation problem is
  • The maximisation problem can be reduced to
  • For a particular consumer the demand function for
    visits to the park is

7
Quality changes
  • What is the WTP for a small increase in quality?
  • For a given price the demand increases
  • Consumer would visit more often
  • What is the marginal WTP ?
  • Surplus gain from quality increase / change in
    quality

pv
A
C
p
B
f(pv,q1Dq,y)
f(pv,q1,y)
v
v1
v2
8
Multiple sites
  • If we repeat the above experiment for a variety
    of quality levels, the marginal WTP-function for
    quality can be generated
  • However, consumer chooses among multiple sites
  • The demand for one site is a function of the
    prices of the other sites as well as the
    qualities
  • For three sites the demand function for one site
    changes to
  • This is straightforward but empirical application
    is more complicated
  • Random utility models (RUM)

9
Multiple sites - 2
  • Visiting site i gives utility
  • b is a parameter and e is an error term
    representing unknown factors
  • We do not observe utility but consumer choice
  • If consumer chooses site i over site j than ui gt
    uj
  • Different values of b yield in different values
    of ui and uj
  • From b we can compute the demand for trips to a
    site as a function of quality of the site and the
    price of a visit
  • We can then examine how demand changes when
    quality of the site changes

10
Implementation Zonal travel cost approach
  • The approach follows directly from the original
    suggestion of Hotelling
  • Gives values of the site as a whole
  • The elimination of a site would be a typical
    application
  • It is also possible to value the change
    associated with a change in the cost of access to
    a site
  • Based on number of visits from different
    distances
  • Travel and time costs increase with distance
  • Gives information on quantities and prices
  • Construct a demand function of the site

11
Steps
  • Define a set of zones surrounding the site
  • Collect number of visitors from each zone in a
    certain period
  • Calculate visitation rates per population
  • Calculate round-trip distance and travel time
  • Estimate visitors per period and derive demand
    function

12
An example
Visits/1000 300 7.755 Travel Costs
13
An entrance fee of 10 Euro
So now we have two points on our demand curve.
14
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15
Drawbacks
  • Not data intensive, but a number of shortcomings
  • Assumes that all residents in a zone are the same
  • Individual data might be used instead
  • More expensive
  • Sample selection bias, only visitors are included

16
Other problems
  • Assumption that people respond to changes in
    travel costs the same way they would respond to
    changes in admission price
  • Opportunity cost of time
  • Single purpose trip
  • Substitute sites
  • Unable to look at most interesting policy
    questions changes in quality

17
Implementation Individual travel cost approach
  • Single-site application of beach recreation on
    Lake Erie within two parks in 1997 (Sohngen,
    2000)
  • Maumee Bay State Park (Western Ohio) offers
    opportunities beyond beach use
  • Headlands State Park (Eastern Ohio) is more
    natural
  • Data is gathered on-site (returned by mail)
  • Single-day visits by people living within 150
    miles of the site
  • Response rate was 52 (394) for Headlands and 62
    (376) for Maumee Bay
  • Substitute sites
  • Nearby beaches similar in character
  • One substitute site for Maumee Bay and two for
    Headlands

18
Model specification
  • Variables included
  • Own price
  • Substitute prices
  • Income
  • Importance (scale from 1 to 5) of water quality,
    maintenance, cleanliness, congestion and
    facilities
  • Dummy variable measures whether or not the
    primary purpose of the trip was beach use
  • Trip cost was measured as the sum of travel
    expenses and time cost
  • Time cost imputed wages (30 of hourly wage)
    times travel time
  • Functional form
  • They tried different specifications and chose a
    Poisson regression

19
The results
  • Per-person-per-trip values are
  • 25 for Maumee Bay
  • 1/0.04
  • 38 for Headlands
  • 1/0.026

20
Random utility models
  • Extremely flexible and account for individuals
    ability to substitute between sites
  • Can estimate welfare changes associated with
  • Quality changes at one/many sites
  • Loss of one/many sites
  • Creation of one/many new sites
  • Main drawback estimate welfare changes
    associated with each trip
  • Visitors might change their number of visits

21
Sum up Alternative TCMs
  • Zonal travel cost method trips to one site by
    classes of people
  • Individual travel cost method trips to one site
    by individual people
  • Random utility models trips to multiple sites
    by individual people
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