Travel Cost Model: an example Sittidaj Pongkivorasin Faculty of Economics, Chulalongkorn University

Economic Value Total Economic Value Use ValueNon-Use ValueOption Value DirectIndirectExistenceBequest

Valuation Method IndirectDirectBenefit Transfer Market - Preventive expenditure - Avoidance cost - etc. Surrogate - Travel Cost - Hedonic CVMCM

Concept Ordinary demand curve, p1p1 CS

Travel demand trips Cost/trip

Travel Cost Model (TCM) site recreational benefits TCM uses the cost of traveling to a site as a means of inferring the recreational benefits which that site provided. TCM can be used:  to measure the use value of a recreation area or historic site.  to estimate increases in the use value if the site were improved. travel costthe quantity of visits. Changes in travel cost will cause a variation in the quantity of visits. Observation of these variations across individuals will permit the estimation of demand functions and of the value of the site.

Assumptions The cost of travel + cost of time are a proxi for recreational value The “number of visits” which is the decision variable in the model is assumed to be “the trip of equal length” for each visit and each sample. Visiting the site is assumed for the “single purpose” which is for recreation. Number of visits to the site and the quality of the site are assumed “complement”. More visits are expected when the quality is improved.

2 types of TCM Individual TCM Zonal TCM Both shares the same idea…

Individual TCM Number of visits = q Cost of a visit = p Estimate v j = total number of visit. c j = the visit cost x j = all other factors

Steps in estimating a single site model 1.Define the site to be valued 2.Define the recreation uses and seasons 3.Develop a sampling strategy (on-site vs. off-site) 4.Specify the model (variables asked) 5.Decide on the treatment of multiple purpose trips (remove, partial) 6.Design and implement the survey 7.Measure trip cost (travel, access fee, equipment, cost of time) 8.Estimate the model (OLS, Poisson) 9.Calculate access value Source: Markandya

Zonal Travel Cost Method (ZTCM) ZTCM divides the entire area from which visitors originate into a set of visitor zones and then defines the dependent variable as the visitor rate km km km. ……… travel cost increases through the distance. Concentric ring zone

Travel cost Travel cost of individual i traveled from zone j C ij =C(dc ij, tc ij, f i ); Individual i=1,…,n. Zone j=1,…,m. where C ij = total travel cost of individual i traveled from zone j to the site. dc ij = travel cost related to the distance tc ij = travel cost related to time. f i = entrance fee

The trip generating function The trip generating function (by zone): Where v j = total no.of trips (visits) by individuals from zone j. N j = population of zone j v j /N j = participation rate for zone j (visits per capita to the site) => (#visits/person per year) c j = the cost of travel from zone j to the site. Xj = a vector of the socio-economic characteristics of zone j.

Demand function: v j /N j =a + b C j Visit rate Travel cost/visit cjcj V j /N j 0 Zone 1 Zone 2 Zone 3 A B TC

ZoneVisits/YearPopulationVisits/1000Total travel costs Visits/1000 = 300 – * Travel Costs An example

An entrance fee of 10 Euro ZoneCostsVisits/1000PopulationVisits Total744 So now we have two points on our demand curve.

Advantages of TCM Based on market price Actual observed behavior Inexpensive Easy to interpret

Issues and Limitations Single purpose trip Opportunity cost of time Substitution site On-site interview  Sampling bias Need enough distance to make the difference