Crater Lake is undeniably a remarkable sight. The clear water and shear size of the caldera is amazing. People travel for miles to visit Crater Lake, although most of them will spend less than an hour at the caldera itself (see video). It is bizarre to think that people would drive several hours to visit a park and only spend a fraction of the travel time at the destination. What does this say about how much they value the destination?

The economic brain can logically assume that each visitor’s value of the destination is commensurate with the opportunity cost of traveling. The easiest way to reveal value is to equate total benefits with total costs. To estimate the value of Crater Lake’s view, we can use the travel cost method. This revealed preference technique will utilize the information regarding the absurd amount of time spent traveling to determine a dollar value.

Travel Cost Method

Since the economic brain is determined to interpret all values as dollars, we start by counting the dollars actually spent during travel. This includes gasoline, food, and possibly lodging. We need all the information possible to determine the total cost of a trip to Crater Lake. Obviously, this cost will vary depending on how distant the visitor’s origin is. Until we become an Orwellian dystopia, the only way of gathering this data is through surveys.

Understanding It

There is a simple way to understand this, after that we get really fancy with it. The basic idea is that with increased distance from the destination vistors face increased cost. As costs rise, the number of trips to this destination will decrease.

So, what information do we need?
  • A sample of visitors to Crater Lake (or whichever destination)
  • Their city of origin (as explained later)
  • Time spent traveling and at destination
  • Household income of each visitor
  • An estimate of each vistors travel cost

Should the stewards of Crater Lake randomly survey visitors for this information, they could begin illustrate how travel cost effects the number of visits to this particular destination. We intelligently split our information into a few zones, and grab averages of our data for each zone. This makes it much easier to get a general estimate, rather than have our data thrown off by a few hippies that visit Crater Lake religiously.

Now we need to determine the average cost to travel to Crater Lake from each Zone. This logically ought to include the estimate of each visitors cost that we gathered before. However, we must also include a dollar cost of the time spent during this trip. Remember, these visitors could have theoretically spent their time working and earning a wage. Instead they are enjoying nature. To reveal the cost of this decision, we can multiply the average income of each zone by its corresponding average time spent traveling and at destination. We can add the travel cost and opportunity cost to create a Total Average Cost for each Zone.

Finally, calculate a Visitation Rate for each Zone to standardized number of visitors in relation to population population. For instance, Portland in Zone 3 has a much greater population than Ashland in Zone 1. To account for this, we divide the number of visit from each zone by the population of each zone.

The simple formula for each Zone becomes:
Visitation Rate X Population X Total Average Cost = Destination Value

Sometimes this makes more sense in a table:
Total Average Cost
Visitation Rate
Value of Crater Lake

Note: These numbers are annual.

external image 3_8_1_driving.jpgGetting Fancy with It

The method above is not used to publish scientific reports, its is simply a way of understanding the Travel Cost Method and illustrating a ball park value. In order to gather a much more precise value we have to use our data to run a mathematical regression. A regression estimates the effect independent variables have on the dependent variable. In our example the dependent variable would be the visitation rate, and independent variables would include things like the average distance to the destination, average cost, and income.

Further Reading

The Economic Benefits of Snowmobiling to Wyoming Residents
The Economic Value of Hiking
Incorporating users' perceptions of site quality in a recreation travel cost model
travel cost link: