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A Revealed Preference Approach to the Measurement of Congestion in Travel Cost Models

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  • Christopher Timmins
  • Jennifer Murdock
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    Abstract

    Travel cost models are regularly used to determine the value of recreational sites or particular site characteristics, yet a key site attribute, congestion, is often excluded from such analyses. One of several reasons is that congestion (unlike many other site attributes) is determined in equilibrium by the process of individuals sorting across sites, and thus presents significant endogeneity problems. This paper illustrates this source of endogeneity, describes how previous research has dealt with it by way of stated preference techniques, and describes an instrumental variables approach to address it in a revealed preference context. We demonstrate that failing to address the endogeneity of congestion will likely lead to the understatement of its costs, and possibly to the mistaken recovery of agglomeration benefits. We apply our technique to the valuation of a large recreational fishing site in Wisconsin (Lake Winnebago) which, if eliminated, would induce significant re-sorting of anglers amongst remaining sites. In our application, ignoring congestion leads to an understatement of the lake’s value by more than 50 percent.

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    File URL: http://www.economics.utoronto.ca/public/workingPapers/tecipa-213-1.pdf
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    Bibliographic Info

    Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-213.

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    Length: 41 pages
    Date of creation: 31 Mar 2006
    Date of revision:
    Handle: RePEc:tor:tecipa:tecipa-213

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    Related research

    Keywords: Congestion; Random Utility Model; Site Valuation; Travel Cost; Discrete Choice; Instrumental Variables; Quantile Regression;

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    References

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    1. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 33-50, January.
    2. F. J. Anderson & N. C. Bonsor, 1974. "Allocation, Congestion, and the Valuation of Recreational Resources," Land Economics, University of Wisconsin Press, vol. 50(1), pages 51-57.
    3. Frank J. Cesario, 1980. "Congestion and the Valuation of Recreation Benefits," Land Economics, University of Wisconsin Press, vol. 56(3), pages 329-338.
    4. Patrick J. Bayer & Christopher D. Timmins, 2004. "Estimating Equilibrium Models of Sorting Across Locations," Yale School of Management Working Papers, Yale School of Management ysm415, Yale School of Management.
    5. Victor Chernozhukov & Christian Hansen, 2005. "An IV Model of Quantile Treatment Effects," Econometrica, Econometric Society, Econometric Society, vol. 73(1), pages 245-261, 01.
    6. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(4), pages 143-156, Fall.
    7. Boxall, Peter & Rollins, Kimberly & Englin, Jeffrey, 2003. "Heterogeneous preferences for congestion during a wilderness experience," Resource and Energy Economics, Elsevier, Elsevier, vol. 25(2), pages 177-195, May.
    8. Bayer, Patrick & Timmins, Christopher, 2005. "On the equilibrium properties of locational sorting models," Journal of Urban Economics, Elsevier, vol. 57(3), pages 462-477, May.
    9. Whitney Newey & Guido Imbens, 2004. "Identification and Estimation of Triangular Simultaneous Equations Models without Additivity," Econometric Society 2004 North American Summer Meetings, Econometric Society 594, Econometric Society.
    10. Boxall, Peter C. & Hauer, Grant & Adamowicz, Wiktor L., 2005. "Modeling Congestion as a Form of Interdependence in Random Utility Models," Staff Paper Series, University of Alberta, Department of Resource Economics and Environmental Sociology 24078, University of Alberta, Department of Resource Economics and Environmental Sociology.
    11. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
    12. Michael, Jeffrey A. & Reiling, Stephen D., 1997. "The Role Of Expectations And Heterogeneous Preferences For Congestion In The Valuation Of Recreation Benefits," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, Northeastern Agricultural and Resource Economics Association, vol. 26(2), October.
    13. Peter Schuhmann & Kurt Schwabe, 2004. "An Analysis of Congestion Measures and Heterogeneous Angler Preferences in a Random Utility Model of Recreational Fishing," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 27(4), pages 429-450, April.
    14. Murdock, Jennifer, 2006. "Handling unobserved site characteristics in random utility models of recreation demand," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 1-25, January.
    15. Kenneth E. McConnell, 1977. "Congestion and Willingness to Pay: A Study of Beach Use," Land Economics, University of Wisconsin Press, vol. 53(2), pages 185-195.
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