The document provides an overview of the travel cost method, a non-market valuation technique used to estimate the economic value of environmental amenities like recreation sites. It discusses the history and development of the travel cost method from its origins in the 1940s to more recent innovations like the random utility model. The traditional zonal and individual travel cost approaches are described as well as advantages, limitations, and ways to address methodological challenges. Applications of the travel cost method to valuing urban parks and instream flows for recreation are also summarized.

1. Valuing Nature:
A Survey of the Non-Market
Valuation Literature
Mitchell L. Mathis
Houston Advanced Research Center
Allen A. Fawcett
University of Texas, Austin
Laura S. Konda
University of Texas, Austin
VNT-03-01 November 2003
Presented By Mr. Warawut Ruankham,
National Institute of Development Administration, NIDA
22 AUGUST 2020
DE 9007 Environmental Evaluation 1

2. Content of
presentation
2
DE
8100
Microeconomics
Theory
1. Overview
2. History of Travel Cost
3. Method:
1. Traditional TC
2. Radom Utility
4. Advantage and Limitation
5. Criticism of TC and
Methodological Challenges
6. Application
1. Urban Habitat
2. Instream Water

3. Overview
• Travel cost is a method of measuring the “use value” of an environmental amenity
by using the costs that individuals pay to travel to the site as a proxy for the price
of the amenity
• Lesser et al.(1997) assuming that the value that people place on a site does not
systematically vary with travel distance, it is possible to use travel cost as a proxy
for price and derive a demand curve for the recreation site
DE 8100 Microeconomics Theory 3

4. History
DE 8100 Microeconomics Theory 4
Years Authors Development of the Travel Cost Method
1947 Harold Hotelling Proposed a method for measuring the benefits provided by
recreation sites
Travel Cost Model
1958 Trice and Wood Applied the travel cost model to various non-market valuation
problems
Zonal Approach
( using Travel distances and
demographic information)
1959 Clawson
1970 Brown Developed the individual travel cost approach to overcome
some of the limitations of the zonal approach
Individual Travel Cost Approach
(using survey data specific to each
individual’s travel distance and
demographic)
1973 Nawas
1975 Gum and Martin
1981 Morey Innovated the Radom utility model to explain the choice of a
particular recreation site as an outcome of a
utility maximization problem
Random Utility Model
1983 Peterson et al.
1984 Hanemann
1984 Brown and Mendelsohn Developed the hedonic travel cost model to value the
characteristic of the site by examining the implicit prices
Hedonic Travel Cost Model

5. Travel
Cost
Model
Traditional Approach
Zonal Approach
Secondary Data (Small amount of
simple primary data from visitors)
Individual Travel Cost Primary Individual survey
Random Utility Approach
DE 8100 Microeconomics Theory 5
people choose which site in particular to
visit
Indirect Utility Function to calculate the
welfare value for the changes in the site
characteristics or qualities (Freeman,
1993)
people choose the number of trips to
make to each site over a given time period
A travel cost demand function and find the
area user compensated demand as value
of existing site

6. Method: Traditional Approach: Zonal Approach
DE 8100 Microeconomics Theory 6
Assumption People choose the number of trips to make to each site over a given time period
Data requirement
(Variables used)
Distance travel ,Time travel, Travel Cost , Time spent at the recreation site, substitute sites, Demographic
Information of visitors, site characteristics, etc.
• Distance traveled is calculated as the distance from the site to the centroid of each county
• Travel time is computed by assuming a constant vehicle speed and using the round-trip distances from
each zone
• Travel costs associated with the trip include both the monetary costs, such as gasoline, food, wear-and-
tear, and the admission price, as well as the opportunity cost of time.
Demand Function A travel cost demand function (number of visits per capita as a function of travel costs and other demographic)
Value of the site Find the area under compensated demand curve (aggregated over all who
visit the site) as the total value of an existing site
Challenges: How to measure the opportunity cost of time since individual’s Wage income is unavailable ?
: How to treat zones with zero visitation rates ?
Advantage: most appropriate for valuing a site as a whole instead of valuing changes in the characteristics of a site (King & Mazzotta, 2002).

7. Method: Traditional Approach: Individual Travel Cost
DE 8100 Microeconomics Theory 7
Assumption People choose the number of trips to make to each site over a given time period
Data requirement Individual surveys to collect more detailed information. A typical individual travel cost survey will ask visitors about
many of the following topics:
1. location of the visitor’s home or how far they traveled to the site
2. how many times in the past year they visited the site
3. the duration of the trip
4. how much time they spent at the site
5. travel expenses incurred on the trip
6. the visitor’s income, wage, or other information on the value of their time
7. various socioeconomic characteristics of the visitor
8. other locations visited during the same trip, and amount of time spent at each
9. other reasons for the trip (is the trip only to visit the site, or for several purposes)
10. perceptions of environmental quality of the site
11. substitute sites that the person might visit instead of this site (King & Mazzotta, 2002).
Demand Function A travel cost demand function (number of visits per capita as a function of travel costs and other demographic)
Value of the site Find the area under compensated demand curve (aggregated over all who
visit the site) as the total value of an existing site

8. Challenges: How to
measure the opportunity
cost of time ?
8
DE 8100 Microeconomics Theory

9. Method: Traditional Approach: Individual Travel Cost
DE 8100 Microeconomics Theory 9
Challenges How to measure the opportunity cost of time ?
Answers: With the individual travel cost method, it is possible to gather information on wage rate.
However, what if the wage is not actually collected in the survey ?
Freeman (1993) Proposed “Hedonic Wage Equation” to separately and implicitly estimate opportunity cost of time
• We know that individuals are free to choose the number of hours they work, so the wage governs the tradeoff between work and leisure
• If, as is often the case, individuals work a fixed number of hours, for example a fixed 40-hour workweek, then the wage rate is no longer
the appropriate measure for the opportunity cost of time
Bockstael, Strand,
and Hanemann
(1987)
developed a “flexible model” that could deal with two different types of labor market equilibriums.
• If the individual is able to alter hours worked at the margin, then the relevant price is equal to the sum of the monetary costs and the total
time of the visit valued at the marginal wage rate.
• On the other hand, if the individual works a fixed number of hours, then the monetary cost and the time cost enter separately into the
demand function for visits
Wilman (1980) • Another approach values “the time saved” in traveling instead of the opportunity cost of total time traveled
• Modal choice analysis can be used to determine the value of time saved by examining the amount of money visitors are willing to spend
to reduce travel time.

10. Method: Random Utility
DE 8100 Microeconomics Theory 10
Assumption
people choose which site in particular to visit ?
The random utility mode explains choice among various sites is explained as a function of the characteristics of the
available sites
Data requirement
(Variables)
is individual income,
is travel cost for individual i to site j,
is a vector of environmental quality attributes for site j,
is a vector of socioeconomic characteristics for individual i, and
is a random unobservable component of utility
Demand Function Demand for recreational activity >Indirect utility function > the compensating surplus (CS)
Value of the site
Compensating surplus(CS) measures from the random utility model give welfare measures
Note: to obtain a total value, predict each individual’s total number of visits per year by multiply by Participation rates (Miller
and Hay ,(1981) and Russell and Vaughn ,(1982))
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11. MATH EX(DE)PRESSION
DE 8100 Microeconomics Theory 11
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12. Advantages and Limitation of TCM
• The travel cost method closely mimics the more
conventional empirical techniques used by economists to
estimate economic values based on market prices.
• The method is based on actual behavior—what people
actually do—rather than stated willingness to pay—what
people say they would do in a hypothetical situation.
• The method is relatively inexpensive to apply.
• On-site surveys provide opportunities for large sample sizes,
as visitors tend to be interested in participating.
• The results are relatively easy to interpret and explain.
DE 8100 Microeconomics Theory 12
Advantages Issues and Limitations
• If a trip has more than one purpose, the value of the site
may be overestimated.
• Defining and measuring the opportunity cost of time, or
the value of time spent traveling, can be problematic.
• The availability of substitute sites will affect values.
• Those who value certain sites may choose to live nearby
• Interviewing visitors on site can introduce sampling biases
• Measuring recreational quality is difficult
• Not provide about gains or losses from anticipated changes
in resource conditions.
• Etc.

13.  Specific criticisms, methodological problems,
challenges, complications
TCM ignores the various nonuse values, such as existence values and option values,
the travel cost method greatly underestimates the true value of environmental
amenities.
DE 8100 Microeconomics Theory 13
 Addressing Methodological Challenges
combine a travel cost approach with a contingent valuation approach
Note: travel cost method, being revealed preference technique measuring clearly defined use values, is clearly
preferred over contingent valuation, since nonuse values are not a large concern.

14. Application to the “Urban Habitat”
• Lockwood and Tracey (1995) employed both contingent valuation and the zonal travel cost
method to estimate the value of Centennial Park in Sydney, Australia
DE 8100 Microeconomics Theory 14
Sources: https://www.centennialparklands.com.au/visit/our-parks/centennial-park
• Lockwood and Tracey (1995)
used modal choice analysis
(Wilman, 1980) to estimate the
value for travel time
• And to see how much people
value time saved traveling

15. Application to the “Urban Habitat”
• The probability that an individual will choose a particular mode of transport was taken to be a
function of the time and money costs involved. The choice between modes 1 and 2 was
modeled using logit analysis:
• Logistic regression using maximum likelihood estimation to determine the coefficients
• The average value of time saved (a1/a2) was found to be $5.40 per hour (Lockwood and Tracey,
1995).
DE 8100 Microeconomics Theory 15
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16. Application to the “Urban Habitat”
• relationship between the number of visits and travel cost
• where the population of zone a is Pa, the number of visitors form zone a is Va, COST is the travel cost from
zone a, and the estimated coefficients are C(1) and C(2).
• By assessing the effects of additions to travel cost on visitor numbers, the area under an imputed demand curve
can be constructed and can be used as a measure of consumer surplus
• With 3.1 million annual visits, the value of the park’s annual use value was found to be $23 million (Lockwood and
Tracey, 1995).
DE 8100 Microeconomics Theory 16
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17. Application to “Instream Water”
• TVM is often used to measure the river recreational activities such as rafting and fishing, such activities are dependent on the
level of instream flows.
• Amirfathi et al. (1984) performed a travel cost study to value a 50% reduction of instream flows in northern Utah as it
affects fishermen
• Harris & Meister (1983) used a travel cost approach to value the recreational benefits of Lake Tutira, a small lake in New
Zealand
• Ward (1985) used the travel cost method to value instream flows for fishing and white water rafting in rivers near
Albuquerque, New Mexico.
• Sanders et al. (1991) used both the contingent valuation and travel cost methods to estimate the recreation value of
sections of 11 rivers in the Colorado Rocky Mountains
They used OLS to estimate;
Expected annual trips = f(travel cost, travel cost to substitute sites, vacation time, years of residence, recreation experience,
congestion at specific site and trips to rivers outside the State)
Then, by numerically integrating the area under the demand curve above price and summing over all individuals results
in total consumer surplus

18. Application to “Instream Water”
• Sanders et al. (1991) also estimated the probability of participation and The demand
function for recreation benefits was estimated using a logit participation model
ln[P/(1-P)] = BX
where
• the probability of participation is P,
• the vector of coefficients is B,
• and X is the vector of explanatory variables.
• The logit model is then estimated using the maximum likelihood estimator.
• The logit estimate of consumer surplus is affected by the probability of participation

19. Thank you
Q&A
DE 8100 Microeconomics Theory 19