Question

1. The National Park Service has asked you to construct a value of the Grand Canyon. Explain the pros and cons of using the travel cost method to do this. Would you prefer the hedonic method or the stated preference method? Why or why not?

Answer 1

Travel cost method is used to measure the economic value of recreational sites. It includes the full travel costs including time and fees.

Pros:

1. It can be used to measure the cost of any destination that is visited as an amenity.

2. The method can assign values such as consumer surplus etc. in order to eliminate a site.

3. It can be used to measure a change in environmental quality at a recreational site.

4. It helps to find out the policy setting. Example: whether to eliminate or keep a particular recreational site.

5. The method is simpler and is based on actual behaviour.

Cons:

1. The method assumes that the trip is for single use which is not the case.

2. The nature of the modeling of site choice models is not addressed by the method.

3. Suppose people enjoy travel itself, liking the feeling of being out on the road, getting

away from the normal routine. In this case the traveler is obtaining those pure travel benefits

along with those of the recreational site. This would tend to result in the overvaluation of the

recreational site in question.

4. It cannot be used to measure nonuse values.

5. One difficulty with the travel cost method that differs from the broccoli analogy is that those households

with unusually high values for the recreational site can lower the price they pay for it by moving closer to the

recreational site.

Advantages of Hedonic method are:

• Versatility: The method can be comfortably adapted to take into consideration the several probable interactions between environmental quality and the marketed goods.
• This method is often used to approximate the values based on the actual choices of the people.
• The real estate market is a good indication of the values as it is relatively efficient in responding to information.
• It is comparatively easier to obtain data on property sales and characteristics and can be easily compared to secondary data sources in order to acquire the descriptive variables for the regression analysis.