Consumer Surplus Estimates Research Articles

Using contingent behaviour analysis to estimate benefits from coral reefs in Kume Island, Japan: A Poisson‐inverse Gaussian approach with on‐site correction

AbstractCoral reefs face a critical crisis worldwide because of rising ocean temperature, excessive use of resources and soil erosion. As reefs have great recreational and tourism value, the degradation of their quality may have a significant effect on tourism. This study employs a contingent behaviour approach to estimate the effect of reef extinction on the recreational demand for Kume Island, Okinawa, Japan. We propose a Poisson‐inverse Gaussian (PIG) model with correction for on‐site sampling issues to derive a more accurate estimate of consumer surplus (CS). The results show that the annual CS per‐person trip is 5898 yen (US$ 49.15 in 2015 currency) according to the random‐effects PIG model.

Ecosystem accounting: Reconciling consumer surplus and exchange values for free-access recreation

The United Nations Statistical Commission (UNSC) has adopted chapters 8–11 of the System of Environmental-Economic Accounting—Ecosystem Accounting (SEEA EA) as the internationally recognized statistical principles and recommendations for the valuation of ecosystem services and assets for use in ecosystem accounts. This has provided new challenges for environmental economists. Ecosystem accounts capture the contribution of ecosystem assets to economic activity in a compatible way to the traditional System of National Accounts. Both are based on exchange instead of welfare value, with the latter commonly estimated and used in welfare analysis. To estimate exchange values for ecosystem services that contribute to the generation of non-market benefits, exchange prices need to be derived. In this paper, we apply the simulated exchange value (SEV) method to derive exchange prices and values to account for recreation-related services using the travel cost method. We show that exchange prices and average consumer surplus estimates are related. Further, we show that when travel-cost based exchange prices are considered, the proportional reduction in trip numbers is constant if the marginal enabling cost are zero, simplifying the modelling process. We demonstrate the development of accounts for an example recreational fishery based on these measures.

The social value of gambling: surplus estimates by gambling types for France.

We estimate the social surplus of gambling in France by adding three components: consumer surplus, producer surplus and taxation revenue. To estimate consumer surplus, we use the rational benchmark approach, which attributes a loss of welfare (i.e. a negative surplus) to problem gamblers depending on their level of excess spending compared with recreational gamblers. Using data for the year 2019 and considering only legal gambling, we find that the consumer surplus is negative for the gambling activity as a whole. When we add the producer surplus and the taxation revenue to the consumer surplus, we find that the social surplus is more likely to be negative, ranging from -45 billion euros in the pessimistic scenario to + 6 billion euros in the optimistic scenario. There are, however, important differences between gambling types. The social surplus is negative in all scenarios for poker and sports betting. Conversely, it is positive in all scenarios for draw lotteries and scratch cards.

Estimating Consumer Surplus Resulting from Lower Cross-Border E-Commerce Prices

Estimating Consumer Surplus Resulting from Lower Cross-Border E-Commerce Prices

Estimating the effects of fish quality and size on the economic value of fishing in Oklahoma streams and rivers: A revealed preference and contingent behavior approach

Fishing in Oklahoma’s rivers and streams provides a unique experience for anglers in the state. Despite its popularity, information on total demand and economic benefits associated with stream fishing is limited in the state. Research on the role of site quality indicators, such as fish size and quantity, on recreational fishing has shown mixed results. Whether fish size or quantity plays an important role in determining fishing demand and economic value may have important management implications. We estimated the demand and economic value of fishing under varying scenarios by using anglers’ responses to hypothetical behavioral questions related to fishing in Ozark Highland streams and rivers in Oklahoma. We asked how intended number of trips might change in the future given hypothetical increases in catch rates of fish, catch rates of trophy-sized fish, and catch rates of preferred fish species, in combination with anglers’ trip-related data. Under current conditions, we estimated consumer surplus per person per trip to be $55 and aggregate value across all stream anglers in Oklahoma to be $68.51 million. Changes in marginal benefits varied among hypothetical scenarios of fish size and abundance but was maximized with a 25% increase in catch rates of trophy-sized fish. The study findings contribute to the understanding of the economic benefit of fishing in streams and suggest that fish size, rather than fish quantity, is more important to stream anglers in the area.

Assessing tourists’ preferences for conservation of large carnivores in the Italian Alps using a discrete choice experiment

A study on tourists’ preferences for wildlife conservation in the Italian Alps using a choice experiment is presented. The study focuses on wolves, lynx and salamanders, which are in danger of extinction. Welfare analysis suggests that WTP for varying sizes of animal population increases up to 45–55 animals and then decreases. This indicates that tourists are willing to financially contribute to an increase in the number of animals, but they do not want too many individuals, probably due to the impacts that large populations of carnivores may have. Estimated consumer surplus confirms a larger positive welfare change for the scenario with 50 animals. A population of 50 animals is considered a viable population for the survival of wolves and lynx; therefore results indicate that tourists are willing to contribute for sustainable wolf and lynx conservation. The analysis also indicates that the places of residence and where respondents grew up influence preferences.

Effects of Ad-hoc Data Truncation and Homogeneous Preferences on Recreational Demand and Values: An Application to the George Washington and Jefferson National Forests

AbstractWe estimate a travel cost model for the George Washington & Jefferson National Forests using an On-Site Latent Class Poisson Model. We show that the constraints of ad-hoc truncation and homogenous preferences significantly impact consumer surplus estimates derived from the on-site travel cost model. By relaxing the constraints, we show that more than one class of visitors with unique preferences exists in the population. The resulting demand functions, price responsive behaviors, and consumer surplus estimates reflect differences across these classes of visitors. With heterogeneous preferences, a group of ‘local residents’ exists with a probability of 8% and, on average take 113 visits.

Navigating the corn maze: Customizing travel cost models to value market segments in heterogeneous industries

Agritourism is an example of a growing and important industry to rural communities in the United States seeking to leverage interest in their natural resource, agricultural, and other heritage assets. We use survey data and a flexible travel cost model to estimate the part-worth consumer surplus (CS) values of Western US agritourism trips for different regions, activities, and traveler types. Given the rural nature of agritourism may require interested travelers to come from long distances, we also pay particular attention to and compare travelers’ marginal and cumulative travel costs to evaluate the impact on CS estimates. Results indicate that trip and traveler heterogeneity, if unaccounted for, may lead to misinformed policy and management decisions.

Consumer search in the U.S. auto industry: The role of dealership visits

In many markets, consumers visit stores and physically inspect products before making purchase decisions. We view the inspection of a product at a retail location as a search for product fit. We quantify the cost and benefit from searching for product fit using a discrete choice model of demand with optimal sequential search. In these models, the benefit of searching is measured by the standard deviation of the product fit and has, heretofore, been fixed to one in estimation. We show that, with an exogenous search cost shifter, both the cost and benefit of searching can be separately estimated. Our empirical setting is the U.S. automotive market. We assemble a unique data set containing individual-level smartphone geolocation data that inform us about dealership visits. We also obtain information on new vehicle purchases from proprietary DMV registration data. Our exogenous cost shifter is the distance a consumer must travel to visit a dealership. Our results show that the benefit provided by dealerships to consumers is substantial. Within our empirical context, failure to estimate the standard deviation of the product fit leads to biased search cost and consumer surplus estimates and to inaccurate predictions regarding consumers’ number of searches and effects of at-home test drive programs.

Economic valuation of sportfishing in the surroundings of Cerralvo Island, Baja California Sur, Mexico using the travel cost method

Los Cabos, Baja California Sur, Mexico, is a reference for sportfishing (SF). In this vein, a significant number of artisanal fishers from the communities surrounding Cerralvo Island-located 215 km from Los Cabos-have opted to offer SF as a tourist service in recent years. The SF has generated unevaluated economic activity in the area. Thus, stakeholders need to know this value to improve their management decision making. Therefore, this research aimed to make a valuation of the recreation service and factors that influence the demand of SF in Cerralvo Island and surrounding areas using the indirect travel cost method (TCM). For this purpose, 275 surveys were performed at the boat ramps in nearby towns. The estimated consumer surplus (EC) was USD 1,886 per visitor. Approximately 28,864 annual recreational sportfishing trips were recorded, so the total annual surplus was USD 54,437,504. The EC outperformed other national sites and was ≈140% higher than the highest valuation made for Los Cabos, which presumably derived from the differences in costs (v. gr., fishing charter, lodging). These values suggest the opportunity for the development of this activity in the study area.

Fixed Costs and Recreation Value

AbstractWelfare measures from travel cost models net out variable costs such as travel expenses specific to each trip. Costs that are fixed in the short run, such as expenses for equipment that is used over multiple trips, are typically ignored and implicitly netted out. The resulting net value of recreation trips, or consumer surplus, is appropriate for long‐run analysis when consumers can fully adjust their expenditures. However, in cases where some costs are difficult to adjust in the short run, such as when boat owners do not sell their boats in response to the transient effects of an oil spill, traditional consumer surplus measures underestimate the total welfare change. We explain this underestimation and show how to correct for it by adjusting traditional consumer surplus estimates upward. We illustrate our procedure using a model of recreational boating developed to assess damages from the Deepwater Horizon oil spill. In that case, accounting for boating fixed costs resulted in a 50% increase in estimated value relative to estimates of consumer surplus alone.

Consumer Search in the U.S. Auto Industry: The Value of Dealership Visits

In many markets, consumers visit stores and physically inspect products before making purchase decisions. We view the inspection of a product at a retail location as a search for product fit. We quantify the cost and benefit from searching for product fit using a discrete choice model of demand with optimal sequential search. In these models, the benefit of searching is measured by the standard deviation of the product fit and has, heretofore, been fixed to one in estimation. We show that, with an exogenous search cost shifter, both the cost and benefit of searching can be separately estimated. Our empirical setting is the U.S. automotive market. We assemble a unique data set containing individual-level smartphone geolocation data that inform us about dealership visits. We also obtain information on new vehicle purchases from proprietary DMV registration data. Our exogenous cost shifter is the distance a consumer must travel to visit a dealership. Our results show that the benefit provided by dealerships to consumers is substantial. Within our empirical context, failure to estimate the standard deviation of the product fit leads to biased search cost and consumer surplus estimates and to inaccurate predictions regarding consumers' number of searches and effects of at-home test drive programs.

Macroeconomic impact of foot-and-mouth disease vaccination strategies for an outbreak in the Midwestern United States: A computable general equilibrium.

The impacts of alternative responses to a hypothetical foot-and-mouth disease (FMD) outbreak occurring in the Midwestern United States are estimated using the Regional Economic Modelling Incorporated Policy Insight + (REMI) computable general equilibrium model, with particular attention paid to the employment impact estimates. The impact on employment and GDP is estimated using forecasts of a 10-year period with disease outbreak duration up to 2years. Fifteen different vaccination protocols are compared to a disease control protocol that relies on animal depopulation with no vaccination. Results show that over the 10-year study period, the strictly depopulation strategy that made no use of vaccination results in approximately 677,000 jobs lost with $47 billion GDP loss. Based on the analysis conducted, losses can be reduced through protocols that utilize vaccination strategies. Through a vaccinate-to-live strategy with the highest vaccination capacity and largest vaccination zone, savings can be as many as 509,000 jobs in comparison to the strategy that relies strictly on slaughter with no use of vaccination. By including detailed job losses by occupation, this study highlights the downstream employment effects and shows that job losses resulting from an FMD outbreak can go far beyond the farm sector impacts that have been reported in earlier studies. Understanding the impacts on employment by sector provides more actionable information than producer and consumer surplus estimates frequently reported in economic impact studies.

A method to value nature-related webcam viewing: the value of virtual use with application to brown bear webcam viewing

ABSTRACTThere are an estimated 16,000 nature related remote web cameras that provide users around the world with an opportunity to view wildlife. Because there is no monetary price to view the webcams, we utilise variations in the viewers’ opportunity cost of time to estimate consumer surplus. We apply this model to a large sample (n = 2649) of the more than 10 million viewers of Alaska's Katmai National Park and Preserve brown bear webcams. The resulting consumer surplus is around $11 per hour of viewing. When applied to the 2.42 million viewer hours, this yields a benefit of $27 million annually. Since there are limits on the number of visitors as well as high costs of visiting this remote site, the aggregate webcam viewing value is more than twice the aggregate on-site viewing value. With minimal survey data required to apply this model, we believe it has broad applicability to other nature-related webcams around the world.

Recreation economics to inform migratory species conservation: Case study of the northern pintail

Quantification of the economic value provided by migratory species can aid in targeting management efforts and funding to locations yielding the greatest benefits to society and species conservation. Here we illustrate a key step in this process by estimating hunting and birding values of the northern pintail (Anas acuta) within primary breeding and wintering habitats used during the species’ annual migratory cycle in North America. We used published information on user expenditures and net economic values (consumer surplus) for recreational viewing and hunting to determine the economic value of pintail-based recreation in three primary breeding areas and two primary wintering areas. Summed expenditures and consumer surplus for northern pintail viewing were annually valued at $70M, and annual sport hunting totaled $31M (2014 USD). Expenditures for viewing ($42M) were more than twice as high than those for hunting ($18M). Estimates of consumer surplus, defined as the amount consumers are willing to pay above their current expenditures, were $15M greater for viewing ($28M) than for hunting ($13M). We discovered substantial annual consumer surplus ($41M) available for pintail conservation from birders and hunters. We also found spatial differences in economic value among the primary regions used by pintails, with viewing generally valued more in breeding regions than in wintering regions and the reverse being true for hunting. The economic value of pintail-based recreation in the Western wintering region ($26M) exceeded that in any other region by at least a factor of three. Our approach of developing regionally explicit economic values can be extended to other taxonomic groups, and is particularly suitable for migratory game birds because of the availability of large amounts of data. When combined with habitat-linked population models, regionally explicit values could inform development of more effective conservation finance and policy mechanisms to enhance environmental management and societal benefits across the geographically dispersed areas used by migratory species.

Non-market Value of Winter Outdoor Recreation in the Swiss Alps: The Case of Val Bedretto

A longstanding interest from environmental economists on winter outdoor recreation has overlooked activities practiced outside the boundaries of winter resorts—e.g. ski mountaineering. This paper implements the Travel Cost Method to estimate consumer surplus per season derived from ski mountaineering and snowshoeing in Val Bedretto—a valley located in the Swiss Alps. In addition, the Contingent Behavior Method is used to estimate the changes in welfare associated with the construction of an alpine center that would provide services aiming to reduce the risk of injury and death associated with winter outdoor recreation. The data is analyzed by means of latent class panel on-site count models. The latent class approach allows us to identify subpopulations that benefit from the alpine center. The results show that 33% of visitors would experience an increase in their consumer surplus per season equivalent to €31 per visitor.

Assessing the recreational value of world heritage site inscription: A longitudinal travel cost analysis of Mount Fuji climbers

This study evaluates the impact of listing on the recreational value of one world heritage site (WHS) using a zonal travel cost method (ZTCM) and investigates the spatial and temporal pattern of consumer surplus (CS) in each calibrated zone. Climber demand is estimated at Mount Fuji during consecutive summer seasons (2008–2013). Per capita visit rates from 21 origin zones are used to calibrate the longitudinal ZTCM with panel count data generating CS estimates in the seasons before and immediately after inscription. Findings suggest that the value did not fluctuate significantly after WHS inscription. Furthermore, we use spatial analysis tools in GIS to investigate the spatial distribution of zonal CS estimates. Two clusters revealed significant change: central Japan and the peripheral regions. This study's originality derives from its hybrid, revealed preference approach to monitoring recreational value of cultural heritage, combining panel data with field surveys collected from Fuji climbers over six seasons.

Impact of satisficing behavior in online surveys on consumer preference and welfare estimates

Conducting online surveys through consumer panels has become increasingly popular for researchers to assess consumers’ preferences and attitudes for the purpose of obtaining welfare estimates because they are inexpensive, flexible, and allow for fast feedback. Interestingly, few studies have examined the behaviors of online survey panelists, particularly their satisficing behaviors on welfare measures. This study demonstrates the use of validation questions (trap questions) to detect survey respondents’ satisficing behavior and its impact on consumer choice, willingness to pay (WTP), and consumer surplus (CS) estimates. We find that respondents who fail a validation question (VQ) are more likely to violate the weak axiom of revealed preferences (WARP) in the choice experiment. The estimates for preference parameters, WTP, and CS are statistically different between those who pass and those who fail the VQ. In addition, the WTP and CS from respondents passing the VQ in general have smaller variances than those from respondents failing the VQ. These results indicate that without controlling for potential satisficing behaviors, online surveys may produce less efficient estimates (estimates with larger variance) of welfare measures.

Valuing cultural world heritage sites: an application of the travel cost method to Mont-Saint-Michel

ABSTRACTThis article, using the zonal version of the travel cost method (ZTCM), provides the first economic valuation of recreational trips to Mont-Saint-Michel (MSM). The MSM was designated as United Nations Educational, Scientific and Cultural Organization World Heritage Site in 1979, and is the most visited coastal site in France. The potential effects on consumer surplus (CS) estimates of some aspects of the ZTCM are considered, namely the treatment of the multiple purpose/destination (MP/D) trips, the inclusion of the opportunity cost of time (OCT) in the recreation demand model and the heterogeneity in the preferences. The heterogeneity in the preferences is examined through a random parameters Poisson model (RPPM). The RPPM generalizes the standard Poisson model (SPM) by allowing coefficients of explanatory variables to vary randomly across geographical units rather than being fixed. Our results show that (1) substantial CS values are associated with the MSM; (2) excluding/ignoring MP/D trips result in biased CS estimates; (3) omitting OCT does not substantially bias CS estimates; (4) the RPPM provides richer information about the impact of explanatory variables on the demand for trips than the SPM, but (5) leads to statistically similar CS estimates than the SPM.

The demand function for residential heat through district heating system and its consumption benefits in Korea

The demand for residential heat (RH) through a district heating system (DHS) has been and will be expanded in Korea due to its better performance in energy efficiency and the abatement of greenhouse gas emissions than decentralized boilers. The purposes of this paper are two-fold. The first is to obtain the demand function for DHS-based RH in Korea and investigate the price and income elasticities of the demand employing the quarterly data covering the period 1988–2013. The short-run price and income elasticities are estimated as −0.700 and 0.918, respectively. Moreover, the long-run elasticities are −1.253 and 1.642, respectively. The second purpose is to measure the consumption benefits of DHS-based-RH employing the economic theory that they are the sum of the actual payment and consumer surplus for the consumption. Considering that the average price and estimated consumer surplus of the DHS-based RH use in 2013 are computed to be KRW 87,870 (USD 84.1) and KRW 62,764 (USD 60.1) per Gcal, the consumption benefits of the DHS-based RH are calculated to be KRW 150,634 (USD 144.2) per Gcal. This information can be beneficially utilized to conduct an economic feasibility study for a new DHS project related to RH supply.