Travel cost example Value change in beach water quality [e.g. near Coal Oil Point (with oil, without oil)] Assume: travel cost is $0.20/mile No other opportunity.

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Presentation transcript:

Travel cost example Value change in beach water quality [e.g. near Coal Oil Point (with oil, without oil)] Assume: travel cost is $0.20/mile No other opportunity costs of time Demand is linear

Data CityPopulationDist from beach Visitors (good quality) Visitors (bad quality) A1, B2, C

Question What is the value of cleaning up the beach? Procedure: 1. Estimate a demand curve for the average visitor under clean conditions 2. Estimate a demand curve for the average visitor under dirty conditions 3. Calculate the change in Consumer Surplus associated with clean beach (be careful to scale by population)

Demand curves for avg. visitor City“Price”Visitation rate (clean) Visitation rate (dirty) A B$ C$

Plotting demand curves $0 $2.00 $ Average Demand: Clean beach Average Demand: Dirty beach % of population that visits beach Price

Value of a clean beach For a person who’s effective price is $0, what is the value of cleaning up the beach? Entire change in CS: (.5)(.75-.5)(10)= people have effective price of $0 Change in CS to them is $1,250. For person who’s effective price is $2.00 Change in CS: (.5)(.6-.4)(10-2)= people Change in CS to them is $1,600. Total Change in CS = $2,850.