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

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.