Income and Substitution Effects in the Travel Cost Model: An Application to Indiana State Parks

Abstract

The use of public resources to expand state park systems is an important economic policy issue. From a theoretical perspective, state park systems should be expanded only if the benefits derived from adding a new park exceed the costs of establishing and maintaining the park. Benefit-cost analysis is a frequently employed method for comparing the economic benefits and costs associated with provision of public goods, such as a park, over time. Although most states do not explicitly use benefit-cost analysis to determine whether to establish parks, policy makers must implicitly consider two issues when making decisions about expansion of the state park system: first, whether a new park can be justified on fiscal grounds and, second, whether establishing a new park expands perceived benefits for the public as a whole. The state of Indiana is currently in the process of establishing a new park, to be called Prophetstown State Park. The Indiana Heritage Trust Program will fund establishment of the park.' The Indiana Department of Commerce recently completed a fiscal impact study for Prophetstown State Park. The study specifically examines the effects of park establishment on the state budget and shows that construction of Prophetstown will likely create a net gain in income for the state budget (Indiana Department of Commerce). However, patterns of demand at existing parks are currently not well known, and the potential effects of the new Prophetstown Park on rates of use at existing parks have not been examined.