Grantee Research Project Results
2000 Progress Report: An Examination of Utility Consistent Approaches to Modeling Corner Solutions in Recreation Demand
EPA Grant Number: R826615Title: An Examination of Utility Consistent Approaches to Modeling Corner Solutions in Recreation Demand
Investigators: Herriges, Joseph A. , Kling, Catherine L. , Phaneuf, Daniel J.
Current Investigators: Herriges, Joseph A. , Phaneuf, Daniel J. , Kling, Catherine L.
Institution: Iowa State University , North Carolina State University
EPA Project Officer: Chung, Serena
Project Period: September 1, 1998 through August 31, 2001 (Extended to October 31, 2000)
Project Period Covered by this Report: September 1, 1999 through August 31,2000
Project Amount: $134,759
RFA: Decision-Making and Valuation for Environmental Policy (1998) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
Recreation demand models are used extensively to value existing recreation facilities, as well as policies that change the quality attributes and number of recreation sites. However, currently popular modeling frameworks such as those that link a site selection model with a separate participation equation, while providing useful insight into the recreation usage, are hampered by the lack of an underlying utility theoretic framework. The Kuhn-Tucker model, as well as its dual counterpart, provides a promising alternative approach that unifies the site selection and participation decisions in a utility theoretic framework. These models provide a consistent treatment from the behavioral model to the estimating equations. Unfortunately, there has been only limited experience with either of these models to date. This research project is aimed at expanding both our understanding of these models and procedures that will facilitate their use in applied welfare analysis.
Progress Summary:
Progress on this project over the past reporting period can be divided along the lines of objectives 1 and 2 of the project. Several lines of research fall within objective 1, which focuses on model specification and econometric issues associated with utility consistent corner solution models in recreation demand. First, we have extended our analysis of the welfare measures revealed within the Kuhn-Tucker modeling framework. As noted last year, the Kuhn-Tucker model does not require the imposition of weak complementarity, raising both the possibility of rejecting this restriction in estimation and the question as to what components of welfare are revealed by a non-weakly complementarity model. We have examined the components of welfare that can be extracted from KT models, identifying both the components of value that are "revealable" from behavioral data and potential sources of bias in their estimation. Our empirical analysis on Iowa wetland usage indicates that welfare estimates derived from KT models can differ by an order of magnitude depending upon the assumed source of violations of weak complementarity. Second, we have investigated alternative approaches to incorporating the opportunity cost of time within the KT framework, including the use of: (a) a dual constraint model (Bockstael, et al., 1987), (b) full income and full prices via the assumption of weak separability (Larson, 1990), and (c) a conditional demand interpretation (Shaw, et al., 1999), as well as the traditional approach of relying upon a fixed fraction of the wage rate. As one would expect, the competing approaches produce statistically different welfare estimates, requiring a choice by the analyst on the preferred approach. In an empirical application using data on Iowa wetland usage, the dual constraint model from Bockstael, et al. (1987) appears to have the most intuitive appeal, producing welfare estimates for a statewide 20 percent increase in pheasant counts of $22/season, along with intuitive and statistically significant coefficient estimates. Finally, we expand upon an idea presented in Crooker and Kling (2000) (CK) that suggests that revealed preference data can be combined with stated preference data to produce bounds on the willingness to pay for price changes in a recreation good. Our insight is to think about the bounds, which contain both RP and SP data, as prior information in the construction of parametric models. Preliminary work for demonstration purposes has been completed on the Iowa wetlands data. The research suggests that these non-parametric bounds may provide a useful basis for model selection.
Objective 2 of the project is to compare traditional approaches of modeling recreation demand to the utility consistent methods. Within this line of research, we have focused our efforts on comparing the KT framework to count data approach employed, for example, by Shonkweiler. Count data models account for the integer nature of recreation demand but address non-consumption from a purely statistical perspective. A second objective in this research is to examine how best to allow for correlations in the unobserved determinants of choice across related sites. The complex structure of both the statistical and economic approach to corners estimation has necessitated the use of relatively simple correlations to date. Recently, Herriges and Phaneuf (2000) have proposed using mixed logit models as a means for allowing more complex cross-site correlation in RUM models. They suggest an error components interpretation that allows complex error structures to be intuitively specified and tractably estimated. We use their insights derived in the context of mixed logit models to allow for correlations in the unobservable determinants of choice for both the economic and statistical specifications of the LES demand system models. The empirical analysis relies upon the Iowa wetland data. Various dimension problems can be specified using this data. The analysis to date suggests that the use of mixed distributions for enhanced error structure makes a significant difference, both in terms of the statistical properties and fit of both models and the magnitude of welfare effects. For example, using the 5-good model Iowa wetland usage, with pheasant counts as an explanatory variable, the simplest independent error KT model provides a seasonal (use-only) welfare measure of $20.33 for a 20 percent increase in counts, while a similar model including correlation terms between sites exhibiting similar characteristics (i.e., riverine wetlands and upland wetlands) produces an estimate of $11.52.
Future Activities:
Our future activities will center on further pursuing objectives one and two set forth in the project proposal:
Objective 1. Investigate modeling, specification, and econometric issues associated with utility consistent corner solution models in recreation demand. In particular, we plan to consider various flexible functional forms, the use of index number theory to test for and specify sites and their associated prices, and further generalizations of the error structure.
Objective 2. Compare traditional approaches of modeling recreation demand to the utility consistent methods. We will continue to pursue this objective using data from the Iowa Wetlands survey, as well as data from an ongoing survey of recreational usage at Clear Lake in north central Iowa.
Journal Articles on this Report : 3 Displayed | Download in RIS Format
Other project views: | All 16 publications | 8 publications in selected types | All 7 journal articles |
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Herriges JA, Kling CL, Phaneuf DJ. What's the use? Welfare estimates from revealed preference models when weak complementarity does not hold. Journal of Environmental Economics and Management 2004;47(1):55-70. |
R826615 (2000) R826615 (Final) |
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Phaneuf DJ, Kling CL, Herriges JA. Estimation and welfare calculations in a generalized corner solution model with an application to recreation demand. The Review of Economics and Statistics 2000;82(1):83-92. |
R826615 (1999) R826615 (2000) R826615 (Final) |
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Phaneuf DJ, Herriges JA. Choice set definition issues in a Kuhn-Tucker model of recreation demand. Marine Resource Economics 1999;14(4):343-355. |
R826615 (1999) R826615 (2000) R826615 (Final) R825310 (Final) |
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Supplemental Keywords:
wetlands, water, watersheds, cost benefit, nonmarket valuation, modeling, recreation demand., RFA, Scientific Discipline, Economic, Social, & Behavioral Science Research Program, Geographic Area, State, Economics, Ecology and Ecosystems, decision-making, Ecological Risk Assessment, Economics & Decision Making, Social Science, ecosystem valuation, belief system, corner solution, decision analysis, decision making, environmental values, non-market valuation, utility consistent approaches, IOWA (IA), environmental policy, Monte Carlo study, Wisconsin (WI), utility consistant approaches, behavior change, recreational demand, behavior model, econometric analysisRelevant Websites:
Joseph A. Herriges Homepage Exit
Progress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.