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State Dependence and Long Term Site Capital in a Random Utility Model of Recreation Demand

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  • D. Matthew Massey

    (National Center for Environmental Economics, US Environmental Protection Agency)

  • George R. Parsons

    (College of Marine Studies and Department of Economics, University of Delaware)

Abstract

Conventional discrete choice Random Utility Maximization (RUM) models of recreation demand ignore the influence of knowledge, or site capital, gained over past trips on current site choice, despite its obvious impact. We develop a partially dynamic RUM model that incorporates a measure of site capital as an explanatory variable in an effort to address this shortcoming. To avoid the endogeneity of past and current trip choices, we estimate an auxiliary instrumental variable regression to purge site capital of its correlation with the error terms in current site utility. Our instrumental variable regression gives a fitted value ranging between 0 and 1 for each alternative for each person – a prediction of whether or not a person visited a site. Results suggest that the presence of accumulated site capital is an important predictor of current trips, and that failure to account for site capital will likely lead to underestimates of potential welfare effects.

Suggested Citation

  • D. Matthew Massey & George R. Parsons, 2008. "State Dependence and Long Term Site Capital in a Random Utility Model of Recreation Demand," Working Papers 08-02, University of Delaware, Department of Economics.
    • Handle: RePEc:dlw:wpaper:08-02.
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    References listed on IDEAS

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    More about this item

    Keywords

    Random Utility Model; State Dependence; Non-Market Valuation;
    All these keywords.

    JEL classification:

    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources

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