Travel Costs Lecture 18 October 31, / /

Admin Issues zFinal Project Outlines zLandfill Gas Projects zHW 5 Due next Monday (sorry). yThis week’s office hours Thurs 4pm, Fri 1:30pm. yNext week back to normal (Pauli Mon AM). zSchedule Set for Rest of Semester yHW due dates a bit flexible - you decide.

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. zPollution and other impacts from this development could destroy the fish habitat yResulting in a serious decline in, or total loss of, the site’s ability to provide recreational fishing services. zResource agency staff want to determine the value of programs or actions to protect fish habitat at the site.

Why Use Travel Cost? zSite 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. zThe expenditures for projects to protect the site are relatively low. Thus, using a relatively inexpensive method like travel cost makes the most sense. zRelatively 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. y Assume Zone 0 has zero travel distance and time. y Use average cost per mile and per hour of travel time, to calculate travel cost per trip. y Standard cost per mile is $0.30. The cost of time is from average hourly wage. y 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.

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?

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% yGood resource for studies like this:

Government Analyses zDOT (1997): Use % of wage rates for local/intercity and personal/business travel yPersonal: 50% for local, 70% intercity yBusiness: 100% for all trips yThese are the values we will use in class 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 Office of Secretary of Transportation, “Guidance for the Valuation of Travel Time in Economic Analysis”, US DOT, April 1997.

Introduction - Congestion zCongestion (i.e. highway traffic) has impacts on movement of people & goods yLeads to increased travel time and fuel costs yLong commutes -> stress -> quality of life yImpacts freight costs (higher labor costs) and thus increases costs of goods & services yhttp://tti.tamu.edu/inside/hdv/programs/ama /mobility/study/report.stm (TTI report)

Literature Review zTexas Transportation Institute’s 1999 Annual Mobility Report y15-year study to assess costs of congestion yAverage daily traffic volumes yBinary congestion values x‘Congested’ roads assumed both ways yAssumed 5% trucks all times/all roads yAssumed 1.25 persons/vehicle, $12/hour yAssumed roadway sizes for 3 classes of roads yFour different peak hour speeds (both ways)

Results zAn admirable study at the national level zIn 1997, congestion cost U.S. 4.3 billion hours of delay, 6.6 billion gallons of wasted fuel, thus $72 billion of total cost zNew Jersey wanted to validate results with its own data

New Jersey Method zUsed New Jersey Congestion Management System (NJCMS) - 21 counties total xHourly data! Much more info. than TTI report yFor 4,000 two-direction links xFreeways principal arteries, other arteries yDetailed data on truck volumes yAverage vehicle occupancy data per county, per roadway type yDetailed data on individual road sizes, etc.

Level of Service zDescription of traffic flow (A-F) yA is best, F is worst (A-C ‘ok’, D-F not) zPeak hour travel speeds calculated yCompared to ‘free flow’ speeds yA-C classes not considered as congested yD-F congestion estimated by free-peak speed zAll attempts to make specific findings on New Jersey compared to national zhttp://

Definitions zRoadway Congestion Index - cars per road space, measures vehicle density yFound per urban area (compared to avgs) y> 1.0 undesirable zTravel Rate Index yAmount of extra time needed on a road peak vs. off-peak (e.g = 20% more)

Definitions (cont.) zTravel Delay - time difference between actual time and ‘zero volume’ travel time zCongestion Cost - delay and fuel costs yFuel assumed at $1.28 per gallon yVTTS - used wage by county (100%) yAlso, truck delays $2.65/mile (same as TTI) zCongestion cost per licensed driver yTook results divided by licenses yAssumed 69.2% of all residents each county

Details zCounty wages $10.83-$23.20 per hour zFound RCI for each roadway link in NJ yAggregated by class for each county

RCI result: Northern counties generally higher than southern counties New York City

TRI result: Northern counties generally higher than southern counties

Avg annual Delay = 34 hours! Almost a work Week!

Effects zCould find annual hours of delay per driver by aggregating roadway delays yThen dividing by number of drivers zTotal annual congestion cost $4.9 B yOver 5% of total of TTI study y75% for autos (190 M hours, $0.5 B fuel cost) y25% for trucks (inc. labor/operating cost) yAvg annual delay per driver = 34 hours

Future zPredicted to only get worse yCongestion costs will double by 2015