Distortions to travel cost derived demand curves : water quality and durable goods Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/8p58ph28h

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  • The travel cost method of deriving demand and value of recreation does not include fixed costs of recreational durable goods purchases or allow for supply restrictions on the number of suitable sites available. The omission of these two real-world situations results in derivation of demand curves which are more inelastic than truly exist and, consequently, incorrect estimates of value. Anglers visit sites based on how far they must travel, the water quality of the site, and the presence of facilities. These site characteristics may not be available in adequate supply to meet demand. If so, a supply restriction will exist such that recreators must travel farther or settle for less quality. Simple regression would fit a downward-sloping function through a scatter plot of both supply and demand which would be steeper than the true demand curve. In addition, regression is limited in its ability to deal with interaction of variables and a categorical data set. The loglinear model for categorical data accounts for variable interactions. Results of the empirical study of Pacific Northwest recreational fishing demand and value show that anglers respond to the supply problem rationally and in accordance with utility theory. The per angler per year value of improving all average water quality sites to good-excellent levels was between $8.98 and $34.14, only slightly higher than estimates of other recent studies. Also, installation of facilities and water quality improvement at primitive sites of poor-bad water quality resulted in increased annual benefits of nearly 7000%. Recreators who purchase durable goods incur fixed as well as variable costs. The investment reduces household income but also lowers per trip expenditures. Recreators face two demand curves, one for owning and one for renting the capital good, where utility maximization determines which curve will be chosen. Fit of a scatter by ordinary least squares would estimate a more inelastic demand curve than either of the demand curve pairs unless ownership is considered. Errors in policy are inescapable unless corrections are made. The more capital-intensive the activity, the greater the distortion should be. An empirical study is suggested to test the hypotheses of the theory presented.
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