Travel cost analysis

Travel cost analysis

The travel cost method of economic valuation, travel cost analysis, or Clawson Method is a method of economic valuation used in cost benefit analysis to calculate the value of something that cannot be obtained through market prices (i.e. National Parks, Beaches, Ecosystems). The aim of the method is to calculate willingness to pay for a constant price facility.

Methodology

* A sample of visitors to the facility are surveyed.
* These visitors are split into "Zones" depending on their distance travelled to the facility.
* The average distance to the facility and the average travel cost to the facility from each zone are calculated.
* The Visit Rate from each zone is calculated.

ie) Visit Rate: The Number of Visitors from a given zone/The population of that zone

* The Visit Rate is regressed against Travel cost in order to create a Visit Rate Curve.

Visit Rate from given zone = f(Cost from given zone)

VR=a+b.C

* This curve can then be used to obtain estimates of Visit Rates given differing levels of total costs.
* This enables estimates of numbers of visitors from each zone to be made given differing level of facility price.
* The sum of the number of visitors from each zone can be plotted/regressed against these differing levels of facility price in order to create a demand curve for the facility.
*The area under this demand curve is the willingness to pay for the facility which can be used as a valuation for CBA purposes.

Explanation

The travel cost method of economic valuation is a revealed preference method because it looks at actual human behavior to try to define the value people place on something.

According to [http://www.ecosystemvaluation.org/travel_costs.htm Ecosystemvaluation.org] "The basic premise of the travel cost method is that the time and travel cost expenses that people incur to visit a site represent the “price” of access to the site. Thus, peoples’ willingness to pay to visit the site can be estimated based on the number of trips that they make at different travel costs. This is analogous to estimating peoples’ willingness to pay for a marketed good based on the quantity demanded at different prices."

External links

* [http://www.ecosystemvaluation.org Ecosystem Valuation]


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