Travel Cost Method (2024)

Definitions in thistext:

DemandFunction

ConsumerSurplus

CompensatingVariation

EquivalentVariation

RegressionAnalysis

OpportunityCost

Methods, Section 4
Travel Cost Method

Overview
HypotheticalSituation
Why Use theTravel Cost Method
Optionsfor Applying the Travel Cost Method
Applicationof the Zonal Travel Cost Approach
Applicationof the Individual Travel Cost Approach
Applicationof the Random Utility Approach
Case StudyExamples of the Travel Cost Valuation
Case # 1¡¦EnvironmentalConservation
Case # 2¡¦Improvementsin Water Quality
Summaryof the Travel Cost Method
Applyingthe Travel Cost Method
Advantagesof the Travel Cost Method
Issuesand Limitations

Overview:

The travel cost method is used to estimateeconomic use values associated with ecosystems or sites that are used forrecreation.

The method can be used to estimate theeconomic benefits or costs resulting from:

changes in access costs for a recreationalsite
elimination of an existing recreational site
addition of a new recreational site
changes in environmental quality at a recreationalsite

The basic premise of the travel cost methodis that the time and travel cost expenses that people incur to visit asite represent the ¡¦price¡¦ of access to the site. Thus, peoples¡¦willingness to pay to visit the site can be estimated based on the numberof trips that they make at different travel costs. This is analogousto estimating peoples¡¦ willingness to pay for a marketed good based onthe quantity demanded at different prices.

This section continues with some exampleapplications of the travel cost method, followed by a more complete technicaldescription of the method and its advantages and limitations.

Hypothetical Situation:

A site used mainly for recreational fishingis threatened by development in the surrounding area. Pollution andother impacts from this development could destroy the fish habitat at thesite, resulting in a serious decline in, or total loss of, the site¡¦s abilityto provide recreational fishing services. Resource agency staff wantto determine the value of programs or actions to protect fish habitat atthe site.

Why Use the Travel Cost Method?

The travel cost method was selected inthis case for two main reasons:

1. The site is primarily valuable to peopleas a recreational site. There are no endangered species or otherhighly unique qualities that would make non-use values for the site significant.

2. The expenditures for projects to protectthe site are relatively low. Thus, using a relatively inexpensivemethod like travel cost makes the most sense.

Alternative Approaches:

Contingent valuation or contingent choicemethods could also be used in this case. While they might producemore precise estimates of values for specific characteristics of the site,and also could capture non-use values, they would be considerably morecomplicated and expensive to apply.

Options for Applying the Travel CostMethod:

There are several ways to approach theproblem, using variations of the travel cost method.

These include:

A simple zonal travel cost approach, usingmostly secondary data, with some simple data collected from visitors.
An individual travel cost approach, usinga more detailed survey of visitors.
A random utility approach using survey andother data, and more complicated statistical techniques.

Application of the Zonal Travel CostApproach:

The zonal travel cost method is the simplestand least expensive approach. It will estimate a value for recreationalservices of the site as a whole. It cannot easily be used to valuea change in quality of recreation for a site, and may not consider someof the factors that may be important determinants of value.

The zonal travel cost method is appliedby collecting information on the number of visits to the site from differentdistances. Because the travel and time costs will increase with distance,this information allows the researcher to calculate the number of visits¡¦purchased¡¦ at different ¡¦prices.¡¦ This information is used to constructthe demand function forthe site, and estimate the consumer surplus, or economic benefits, for the recreational services of the site.

Step 1:
The first step is to define a set of zonessurrounding the site. These may be defined by concentric circlesaround the site, or by geographic divisions that make sense, such as metropolitanareas or counties surrounding the site at different distances.

Step 2:
The second step is to collect informationon the number of visitors from each zone, and the number of visits madein the last year. For this hypothetical example, assume that staffat the site keep records of the number of visitors and their zipcode, whichcan be used to calculate total visits per zone over the last year.

Step 3:
The third step is to calculate the visitationrates per 1000 population in each zone. This is simply the totalvisits per year from the zone, divided by the zone¡¦s population in thousands.An example is shown in the table:

Zone	Total Visits/Year	Zone Population	Visits/1000
0	400	1000	400
1	400	2000	200
2	400	4000	100
3	400	8000	50
Beyond 3	0
Total Visits	1600

Step 4:

The fourth step is to calculate the averageround-trip travel distance and travel time to the site for each zone.Assume that people in Zone 0 have zero travel distance and time.Each other zone will have an increasing travel time and distance.Next, using average cost per mile and per hour of travel time, the researchercan calculate the travel cost per trip. A standard cost per milefor operating an automobile is readily available from AAA or other sources.Assume that this cost per mile is $.30. The cost of time is morecomplicated. The simplest approach is to use the average hourly wage.Assume that it is $9/hour, or $.15/minute, for all zones, although in practiceit is likely to differ by zone. The calculations are shown in thetable:

Zone	Round Trip Travel Distance	Round Trip Travel Time	Distance times Cost/Mile ($.30)	Travel Time times Cost/Minute ($.15)	Total Travel Cost/Trip
0	0	0	0	0	0
1	20	30	$6	$4.50	$10.50
2	40	60	$12	$9.00	$21.00
3	80	120	$24	$18.00	$42.00

Step 5:

The fifth step is to estimate, using regressionanalysis, the equation that relates visits per capita to travelcosts and other important variables. From this, the researcher canestimate the demand function for the average visitor. In this simplemodel, the analysis might include demographic variables, such as age, income,gender, and education levels, using the average values for each zone.To maintain the simplest possible model, calculating the equation withonly the travel cost and visits/1000, Visits/1000 = 330 ¡¦ 7.755*(TravelCost).

Step 6:

The sixth step is to construct the demandfunction for visits to the site, using the results of the regression analysis.The first point on the demand curve is the total visitors to the site atcurrent access costs (assuming there is no entry fee for the site), whichin this example is 1600 visits per year. The other points are foundby estimating the number of visitors with different hypothetical entrancefees (assuming that an entrance fee is viewed in the same way as travelcosts).

For the purposes of our example, startby assuming a $10 entrance fee. Plugging this into the estimatedregression equation, V = 330 ¡¦ 7.755C, gives the following:

Zone	Travel Cost plus $10	Visits/1000	Population	Total Visits
0	$10	252	1000	252
1	$20.50	171	2000	342
2	$31.00	90	4000	360
3	$52.00	0	8000	0
			Total Visits	954

This gives the second point on the demandcurve¡¦954 visits at an entry fee of $10. In the same way, the numberof visits for increasing entry fees can be calculated, to get:

Entry Fee	Total Visits
$20	409
$30	129
$40	20
$50	0

These points give the demand curve fortrips to the site.

pleaseclick to enlarge

Step 7:

The final step is to estimate the totaleconomic benefit of the site to visitors by calculating the consumer surplus,or the area under the demand curve. This results in a total estimateof economic benefits from recreational uses of the site of around $23,000per year, or around $14.38 per visit ($23,000/1,600).

How Do We Use the Results?

Remember that the agency staff¡¦s objectivewas to decide whether it is worthwhile to spend money on programs and actionsto protect this site. If the actions cost less than $23,000 per year,the cost will be less than the benefits provided by the site. Ifthe costs are greater than this, the staff will have to decide whetherother factors make them worthwhile.

Application of the Individual TravelCost Approach:

The individual travel cost approach issimilar to the zonal approach, but uses survey data from individual visitorsin the statistical analysis, rather than data from each zone. This methodthus requires more data collection and slightly more complicated analysis,but will give more precise results.

For the hypothetical example of the recreationalfishing site, rather than simply collecting information on number of visitorsand their zipcodes, the researcher would conduct a survey of visitors.The survey might ask for the following information:

location of the visitor¡¦s home ¡¦ how far theytraveled to the site
how many times they visited the site in thepast year or season
the length of the trip
the amount of time spent at the site
travel expenses
the person¡¦s income or other information onthe value of their time
other socioeconomic characteristics of thevisitor
other locations visited during the same trip,and amount of time spent at each
other reasons for the trip (is the trip onlyto visit the site, or for several purposes)
fishing success at the site (how many fishcaught on each trip)
perceptions of environmental quality or qualityof fishing at the site
substitute sites that the person might visitinstead of this site

Using the survey data, the researcher canproceed in a similar way to the zonal model, by estimating, using regressionanalysis, the relationship between number of visits and travel costs andother relevant variables. This time, the researcher would use individualdata, rather than data for each zone. The regression equation givesus the demand function for the ¡¦average¡¦ visitor to the site, and the areabelow this demand curve gives the average consumer surplus. Thisis multiplied by the total relevant population (the population in the regionwhere visitors come from) to estimate the total consumer surplus for thesite.

Because additional data about visitors,substitute sites, and quality of the site has been collected, the valueestimates can be ¡¦fine tuned¡¦ by adding these other factors to the statisticalmodel. Including information about the quality of the site allowsthe researcher to estimate the change in value of the site if its qualitychanges. To do so, two different demand curves would be estimated¡¦onefor each level of quality. The area between these two curves is theestimate of the change in consumer surplus when quality changes.

In the example, the researcher might recognizethat development around the site is unlikely to totally destroy the fishpopulation. However, it could diminish the population enough to adverselyaffect catch rates. By including catch rates in the model, the researchercan estimate the lost recreational benefits from reduced catch rates.However, the random utility model, described in the next section, is amore appropriate approach for this type of estimation.

Application of the Random Utility Approach:

The random utility approach is the mostcomplicated and expensive of the travel cost approaches. It is alsothe ¡¦state of the art¡¦ approach, because it allows for much more flexibilityin calculating benefits. It is the best approach to use to estimatebenefits for specific characteristics, or quality changes, of sites, ratherthan for the site as a whole. It is also the most appropriate approachwhen there are many substitute sites.

In the example, the agency might want tovalue the economic losses from a decrease in fish populations, rather thanfrom loss of the entire fish stock. The random utility approach wouldbe the best way to do so, because it focuses on choices among alternativesites, which have different quality characteristics.

The random utility approach assumes thatindividuals will pick the site that they prefer, out of all possible fishingsites. Individuals make tradeoffs between site quality and the priceof travel to the site. Hence, this model requires information onall possible sites that a visitor might select, their quality characteristics,and the travel costs to each site.

For the example, the researcher might conducta telephone survey of randomly selected residents of the state. Thesurvey would ask them if they go fishing or not. If they do, it wouldthen ask a series of questions about how many fishing trips they took overthe last year (or season), where they went, the distance to each site,and other information similar to the information collected in our individualtravel cost survey. The survey might also ask questions about fishspecies targeted on each trip, and how many fish were caught.

Using this information, the researchercan estimate a statistical model that can predict both the choice to gofishing or not, and the factors that determine which site is selected.If quality characteristics of sites are included, the model can easilyestimate values for changes in site quality, for example the economic lossescaused by a decrease in catch rates at the site.

Case Study Examples of the Travel CostMethod:

Case # 1¡¦Environmental Conservation

The Situation
Hell Canyon on the Snake River separatingOregon and Idaho offers spectacular vistas and outdoor amenities to visitorsfrom around the country and supports important fish and wildlife habitat.It also has economic potential as a site to develop hydropower. Generatinghydropower there would require building a dam behind which would form alarge lake. The dam and the resulting lake would significantly and permanentlyalter the ecological and aesthetic characteristics of Hell Canyon.

The Challenge
During the 1970¡¦s, there were major controversiesregarding the future of Hell Canyon. Environmental economists from ResourcesFor The Future in Washington, D.C. were asked to develop an economic analysisto justify preserving Hell Canyon in its natural state in the face of itsobvious economic potential as a source of hydropower.

The Analysis
Researchers estimated that the net economicvalue (cost savings) of producing hydropower at Hell Canyon was $80,000higher than at the "next best" site which was not environmentally sensitive.They then conducted a low-cost/low precision travel-cost survey to estimatethe recreational value of Hell Canyon and concluded that it was about $900,000.The researchers did not attempt to strongly defend the "scientific" credibilityof the valuation method they used or the results. However, at public hearings,they emphasized that, even if the "true value" of recreation at Hell Canyonwas ten times less than their estimate, it would still be greater thanthe $80,000 economic payoff from generating power there as opposed to theother site. They also illustrated that overall demand for outdoor recreation,for which the supply is limited, was going up, while many other sourcesof energy are available besides Hell Canyon hydropower.

The Results
Based largely on the results of this non-marketvaluation study, Congress voted to prohibit further development of HellCanyon.

Case # 2¡¦Improvements in Water Quality

The Situation
The costs to farmers and taxpayers ofimplementing on-farm best management practices to reduce sediment and nutrientrunoff to the Chesapeake Bay are well known. Controversies arose duringthe 1980¡¦s, which continue today, over the benefits of resulting improvementsin water quality.

The Challenge
Economists were asked to assess the economicbenefits of water quality improvements to beach users in the ChesapeakeBay area. They needed to establish linkages between differences in waterquality and differences in willingness to pay for beach use. The hypothesisthat to be tested was that average willingness to pay, as reflected inthe travel costs to visitors to particular beaches, was positively correlatedwith water quality. If the hypothesis was correct the empirical resultswould allow researchers to estimate the increase in willingness to payof improving water quality at all beaches.

The Analysis
Researchers selected the concentrationof nitrogen and phosphorous in the water at the monitoring station nearestto the beach as an index of water quality at the beach. This was assumedto reflect the level of objectionable visual and other characteristicsthat affect the value of beach use. A cross-sectional analysis oftravel cost data collected from 484 people at 11 public beaches was usedto impute the aggregate willingness to pay for a 20% increase in waterquality, which was assumed to be associated with a 20% reduction in totalnitrogen and phosphorus.

The Results
The average annual benefits to all Marylandbeach users of the improvements in water quality were estimated to be $35million in 1984 dollars. These were thought to be conservative forseveral reasons, including:

The value of improvements in water qualitywas only shown to increase the value of current beach use. However,improved water quality can also be expected to increase overall beach use.
Estimates ignore visitors from outside theBaltimore-Washington statistical metropolitan sampling area.
The population and incomes in origin zonesnear the Chesapeake Bay beach areas are increasing, which is likelyto increase visitor-days and thus total willingness to pay.

Summary of the TravelCost Method:

The travel cost method is used to estimatethe value of recreational benefits generated by ecosystems. It assumesthat the value of the site or its recreational services is reflected inhow much people are willing to pay to get there. It is referred toas a ¡¦revealed preference¡¦ method, because it uses actual behavior andchoices to infer values. Thus, peoples¡¦ preferences are revealedby their choices.

The basic premise of the travel cost methodis that the time and travel cost expenses that people incur to visit asite represent the ¡¦price¡¦ of access to the site. Thus, peoples¡¦willingness to pay to visit the site can be estimated based on the numberof trips that people make at different travel costs. This is analogousto estimating peoples¡¦ willingness to pay for a marketed good based onthe quantity demanded at different prices.

The travel cost method can be used to estimatethe economic benefits or costs resulting from:

changes in access costs for a recreationalsite
elimination of an existing recreational site
addition of a new recreational site
changes in environmental quality at a recreationalsite

The travel cost method is relatively uncontroversial,because it is modeled on standard economic techniques for measuring value,and it uses information on actual behavior rather than verbal responsesto hypothetical scenarios. It is based on the simple and well-foundedassumption that travel costs reflect recreational value. It is oftenrelatively inexpensive to apply.

Applying the Travel Cost Method:

On average, people who live farther froma site will visit it less often, because it costs more in terms of actualtravel costs and time to reach the site. The number of visits from originzones at different distances from the site, and travel cost from each zone,are used to derive an aggregate demand curve for visits to the site, andthus for the recreational or scenic services of the site. This demandcurve shows how many visits people would make at various travel cost prices,and is used to estimate the willingness to pay for people who visit thesite (whether they are charged an admission fee or not).

Other factors may also affect the numberof visits to a site. People with higher incomes will usually makemore trips. If there are more alternative sites, or substitutes,a person will make less trips. Factors like personal interest inthe type of site, or level of recreational experience will affect the numberof visits. A more thorough application will take these and otherfactors into account in the statistical model.

To apply the travel cost method, informationmust be collected about:

number of visits from each origin zone (usuallydefined by zipcode)
demographic information about people fromeach zone
round-trip mileage from each zone
travel costs per mile
the value of time spent traveling, or theopportunitycost of travel time

More complicated, and thorough, applicationsmay also collect information about:

exact distance that each individual traveledto the site
exact travel expenses
the length of the trip
the amount of time spent at the site
other locations visited during the same trip,and amount of time spent at each
substitute sites that the person might visitinstead of this site, and the travel distance to each
other reasons for the trip (is the trip onlyto visit the site, or for several purposes)
quality of the recreational experience atthe site, and at other similar sites (e.g., fishing success)
perceptions of environmental quality at thesite
characteristics of the site and other, substitute,sites

This information is typically collected throughsurveys¡¦on-site, telephone or mail surveys may be used. In addition,especially for simpler applications, much information may be availablefrom state and county resource agencies, or from federal surveys, suchas theNational Survey of Fishing, Hunting and Wildlife Associated Recreation,published every five years by the U.S. Fish and Wildlife Service (availableat http://www.nctc.fws.gov/library/pubs3.html).

The most controversial aspects of the travelcost method include accounting for the opportunity cost of travel time,how to handle multi-purpose and multi-destination trips, and the fact thattravel time might not be a cost to some people, but might be part of therecreational experience.

Advantages of the Travel Cost Method:

The travel cost method closely mimics themore conventional empirical techniques used by economists to estimate economicvalues based on market prices.
The method is based on actual behavior¡¦whatpeople actually do¡¦rather than stated willingness to pay¡¦what people saythey would do in a hypothetical situation.
The method is relatively inexpensive to apply.
On-site surveys provide opportunities forlarge sample sizes, as visitors tend to be interested in participating.
The results are relatively easy to interpretand explain.

Issues and Limitations of the Travel CostMethod:

The travel cost method assumes that peopleperceive and respond to changes in travel costs the same way that theywould respond to changes in admission price.
The most simple models assume that individualstake a trip for a single purpose ¡¦ to visit a specific recreational site.Thus, if a trip has more than one purpose, the value of the site may beoverestimated. It can be difficult to apportion the travel costs amongthe various purposes.
Defining and measuring the opportunity costof time, or the value of time spent traveling, can be problematic. Becausethe time spent traveling could have been used in other ways, it has an"opportunity cost." This should be added to the travel cost, or the valueof the site will be underestimated. However, there is no strong consensuson the appropriate measure¡¦the person¡¦s wage rate, or some fraction ofthe wage rate¡¦and the value chosen can have a large effect on benefit estimates.In addition, if people enjoy the travel itself, then travel time becomesa benefit, not a cost, and the value of the site will be overestimated.
The availability of substitute sites willaffect values. For example, if two people travel the same distance, theyare assumed to have the same value. However, if one person has severalsubstitutes available but travels to this site because it is preferred,this person¡¦s value is actually higher. Some of the more complicated modelsaccount for the availability of substitutes.
Those who value certain sites may choose tolive nearby. If this is the case, they will have low travel costs, buthigh values for the site that are not captured by the method.
Interviewing visitors on site can introducesampling biases to the analysis.
Measuring recreational quality, and relatingrecreational quality to environmental quality can be difficult.
Standard travel cost approaches provides informationabout current conditions, but not about gains or losses from anticipatedchanges in resource conditions.
In order to estimate the demand function,there needs to be enough difference between distances traveled to affecttravel costs and for differences in travel costs to affect the number oftrips made. Thus, it is not well suited for sites near major populationcenters where many visitations may be from "origin zones" that are quiteclose to one another.
The travel cost method is limited in its scopeof application because it requires user participation. It cannot be usedto assign values to on-site environmental features and functions that usersof the site do not find valuable. It cannot be used to value off-site valuessupported by the site. Most importantly, it cannot be used to measure nonusevalues. Thus, sites that have unique qualities that are valued by non-userswill be undervalued.
As in all statistical methods, certain statisticalproblems can affect the results. These include choice of the functionalform used to estimate the demand curve, choice of the estimating method,and choice of variables included in the model.

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