The travel cost method is one of the oldest non-market valuation techniques used to value environmental goods and services (English & Bowker, 1996) and has been used extensively in the valuation of recreational sites (Seller, Stoll, & Chavas, 1985; Smith, Desvousges, & Fisher, 1986). The original theoretical foundation of the Travel Cost Method is attributed to Hottelling’s (1947) suggestion, in a two-page letter to the US National Park Service, that the benefits from outdoor recreation sites could be estimated by calculating individual recreationists’ cost of travel to the site (Smith, 1989; Kahn, 2005; Yao & Kaval, 2007). Hottelling’s theory was first applied in TCM studies involving water-based recreation by Trice and Wood (1958), and Clawson (1959).
The TC technique involves using travel cost as a proxy for the price of visiting outdoor recreational sites (Trice and Wood, 1958; Perman et al., 2003). The rational is that, a recreationist undertakes a visit to a recreational site if the recreational benefits or utility from such a visit is at least equal to the cost of the visit to that site i.e. marginal benefit is at least equal to marginal cost. Travel cost is therefore used as a proxy for the price of the recreational experience on the visit since most recreational sites have zero (or nominal) entry fees (Smith, Desvousges, & Fisher, 1986). In this case, the cost (associated with the trip) incurred in the private goods and services market is used to infer the per-trip value (WTP) for the site visited. The visit to the site is treated as a single transaction and travel cost as the price for that transaction (Wilson & Carpenter, 1999) just like what happens in a market for a private good. When travel costs to a site change, economic theory predicts that individuals or households respond to this change by either increasing (for a reduction in travel cost or entrance fees) or reducing (for an increase in travel cost or entrance fees) the number of trips to the site until the marginal value of the last trip is just equal to travel cost.11
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This follows from the assumption of a rational economic agent and constrained optimization (utility maximization).
A statistical relationship (trip generating function - TGF) between the observed visits and the cost of visiting is derived and used as a surrogate demand curve from which consumers’ surplus per visit- day can be measured by integrating under this curve (Ribaudo & Epp, 1984; Bowker,
English, & Donovan, 1996).
Data on distances travelled to site, mode of transport, travel time, costs directly related to the trip; socio-economic and demographic factors such as household income, age and education; site characteristics; and individual attitudes towards the environment may be collected through carefully designed questionnaires (Champ, Boyle & Brown, 2003). The most popular method of collecting this data is through on-site surveys where a random sample of site users is taken and the questionnaire administered through personal interviews or the individuals may be allowed to take the questionnaire away for completion later. On-site sampling introduces endogenous stratification, truncation, and over-dispersion in travel cost analysis (Shaw, 1988; Smith, 1989; Martinez- Espineira & Amoako-Tuffour, 2005). These concepts will be defined later.
The TC technique assumes weak complementarity between the non-market good or service and consumption expenditure on a complementary market good (Ribaudo & Epp, 1984; Perman et al., 2003). This implies that, when consumption expenditure on the market good is zero, the marginal utility of the non-market good or service is also zero (Cocheba & Langford, 1978; Bouwes & Schneider, 1979). Cocheba and Langford assert that the TCM is only useful for measuring consumers’ surplus when the theoretically correct welfare measure is the Hicksian compensating variation or WTP. Seller, Stoll, and Chavas (1985) correctly point out that the TCM provides estimates of the Marshallian consumer surplus. If the correct welfare measure is the Hicksian equivalent variation or willingness to sell (WTA), the TCM would yield underestimates of value (Hammack & Brown, 1974 as cited by Cocheba & Langford, 1978 p. 494).
Since the Travel Cost Method is based on ex-post travel cost, it cannot be used to estimate values where very little or no travel cost is involved, implying that it cannot be used to estimate non-use values (Krutilla, 1967; Smith, 1989) such as option, existence and bequest values. The value of a recreational activity at a particular site is produced by a set of attributes associated with the site. For example the value of a recreational experience of an individual at the site may depend on a combination of scenic beauty, air quality, diversity of wildlife and fauna. The basic TCM may not effectively isolate the value of, say, wildlife from the value of the other inputs which are combined to produce the recreational experience (Cocheba & Langford, 1978). In other words the
basic TCM is unable to isolate the value of an ecosystem service from the ecosystem functions and other services. However advanced models of the TCM are now able to isolate and measure the importance of individual site attributes in terms of site choice (Smith 1989).
The travel cost method has been used to estimate non-market values of goods and services of a number of ecosystems. For example, Everitt (1983) used the TCM to estimate the value of recreational benefits of a forest ecosystem - the Coromandel State Forest Park in New Zealand. Smith, Desvousges and Fisher (1986) estimated the value of recreational benefits from increased water quality of a freshwater ecosystem. Wilson and Carpenter (1999) reviewed TCM valuation studies of fresh water ecosystem services in the US during the period 1971 and 1997 and observed that the studies focused on recreation demand as a proxy for non-market demand for water quality or water level of lakes, reservoirs and rivers.
3.4.2 Theoretical Illustration of Welfare Changes Associated with an