General Equilibrium Approach consistent with Travel Cost Method for Economic Evaluation of Beach Erosion by Climate Change

Numerous attempts have been made to evaluate economic impacts by climate change, and the evaluation method can be classified into two approaches. One is a partial equilibrium approach and the other is a general equilibrium approach. The former method includes a travel cost method (TCM) and a contingent valuation method. These methods have applied in some studies to quantify economic value of environmental quality. The partial equilibrium approaches for each case, however, cannot capture economic impacts of changes in natural environment by climate change and environmental conservation policies. On the other hand, the latter method has a computable general equilibrium (CGE) analysis. As a CGE model treats all markets in the economy, both direct and indirect impacts of climate change through changes in the behavior of economic agents can be captured. A CGE model, however, needs the formulation of impacts on environmental quality and the estimation of their parameters in this model. As mentioned above, considerable studies on economic evaluation of climate change have separately analyzed by two approaches. Therefore, by explicit linkage between a partial equilibrium approach and a general equilibrium approach, comprehensive assessments in a general equilibrium framework are needed. To measure economic impacts of the changes in environmental quality by climate change, this study develops a theoretical framework of a CGE model that integrates the utility function that has environmental quality as the independent variable derived from a recreation demand function in a TCM, and confirms the validity of our CGE model through some numerical experiments using the beach erosion scenarios. The findings in this study are shown below. 1) By solving the integrability problem, we derived the utility function that has composite goods, visit frequency to recreation sites and environmental quality in the site as the independent variable from the estimation of a recreation demand function in a TCM, and developed the theoretical framework of a CGE model consistent with the utility function derived in this study. 2) Through some numerical experiments by the beach erosion scenarios, we revealed that our CGE model can evaluate the changes in price and income that are not taken into account in the definition of the consumer surplus derived from the partial equilibrium approach. 3) By testing the economic validity of numerically experimental results, we demonstrated that our CGE model is applicable for empirical analysis of climate change.