Travel Costs Lecture 12 October 9, /

Feedback on Evals zThe ‘Happy’ talk zSwitch to optional Friday recitations/project review sessions zMove project presentations before December 1, 02.

Travel Costs zTime is a valuable commodity (time is $) zMost major transportation/infrastructure projects built to ‘save travel costs’ yNeed to tradeoff project costs with benefits yEx: new highway that shortens commutes zDifferences between ‘travel’ and ‘waiting’ yWaiting time disutility might be orders of magnitude higher than just ‘travel disutility’ yWhy? Travelling itself might be fun

Valuation: Travel Cost Method zEstimate economic use values associated with ecosystems or sites that are used for recreation ychanges in access costs for a recreational site yelimination of an existing recreational site yaddition of a new recreational site ychanges in environmental quality ywww.ecosystemvaluation.org/travel_costs.htm

Travel Cost Method zBasic premise - time and travel cost expenses incurred to visit a site represent the “price” of access to the site. zThus, peoples’ WTP to visit the site can be estimated based on the number of trips that they make at different travel costs. yThis is analogous to estimating peoples’ WTP for a marketed good based on the quantity demanded at different prices.

Example Case zA site used mainly for recreational fishing is threatened by development. Pollution and other impacts from this development could destroy the fish habitat at the site, resulting in a serious decline in, or total loss of, the site’s ability to provide recreational fishing services. Resource agency staff want to determine the value of programs or actions to protect fish habitat at the site.

Why Use Travel Cost? ySite is primarily valuable to people as a recreational site. There are no endangered species or other highly unique qualities that would make non-use values for the site significant. yThe expenditures for projects to protect the site are relatively low. Thus, using a relatively inexpensive method like travel cost makes the most sense. yRelatively simple compared to other methods

Options for Method zA simple zonal travel cost approach, using mostly secondary data, with some simple data collected from visitors. zAn individual travel cost approach, using a more detailed survey of visitors.  A random utility approach using survey and other data, and more complicated statistical techniques.

Zonal Method zSimplest approach, estimates a value for recreational services of the site as a whole. Cannot easily be used to value a change in quality of recreation for a site zCollect info. on number of visits to site from different distances. Calculate number of visits “purchased” at different “prices.” zUsed to construct demand function for site, estimate consumer surplus for recreational services of the site.

Zonal Method Steps z1. define set of zones around site. May be defined by concentric circles around the site, or by geographic divisions, such as metropolitan areas or counties surrounding the site z2. collect info. on number of visitors from each zone, and the number of visits made in the last year. z3. calculate the visitation rates per 1000 population in each zone. This is simply the total visits per year from the zone, divided by the zone’s population in thousands.

Sample Data

Estimating Costs z 4. calculate average round-trip travel distance and travel time to site for each zone. Assume Zone 0 has zero travel distance and time. Use average cost per mile and per hour of travel time, to calculate travel cost per trip. Standard cost per mile is $.30. The cost of time is from average hourly wage. Assume that it is $9/hour, or $.15/minute, for all zones, although in practice it is likely to differ by zone.

Data 5. Use regression to find relationship between visits and travel costs, e.g. Visits/1000 = 330 – 7.755*(Travel Cost)

Final steps  6. construct demand for visits with regression. First point on demand curve is total visitors to site at current costs (with no entry fee), which is 1600 visits. Other points by estimating number of visitors with different hypothetical entrance fees (assuming that an entrance fee is valued same as travel costs). Start with $10 entrance fee. Plugging this into the estimated regression equation, V = 330 – 7.755C:

Demand curve zThis gives the second point on the demand curve—954 visits at an entry fee of $10. In the same way, the number of visits for increasing entry fees can be calculated:

Graph Consumer surplus = area under demand curve = benefits from recreational uses of site around $23,000 per year, or around $14.38 per visit ($23,000/1,600). Agency’s objective was to decide feasibility to spend money to protect this site. If actions cost less than $23,000 per year, the cost will be less than the benefits provided by the site.

Value - travel time savings zMany studies seek to estimate VTTS yCan then be used easily in CBAs zBook reminds us of Waters 1993 (56 studies) yMany different methods used in studies yRoute, speed, mode, location choices yResults as % of hourly wages not a $ amount yMean value of 48% of wage rate (median 40) yNorth America: 59%/42%

Government Analyses zTypically 40-60% of hourly rate in CBAs zUS (FHA) 60% - Canada 50% zAgain, travel versus leisure important yWide variation: 1:1 to 5:1! zIncome levels are important themselves yVTTS not purely proportional to income yWaters suggests ‘square root’ relation yE.g. if income increases factor 4, VTTS by 2

Recreation Benefits zValue of recreation studies z‘Values per trip’ -> ‘value per activity day’ zActivity day results (Sorg and Loomis 84) ySport fishing: $25-$100, hunting $20-$130 yCamping $5-$25, Skiing $25, Boating $6-$40 yWilderness recreation $13-$75 zAre there issues behind these results?