The Economic Value of NonMarket Goods: Three Case Studies

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The Economic Value of Non-Market GoodsThree
Case Studies
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Non-Market Goods

• Provide benefits to people
• Not exchanged in established markets
• Important components in benefit/cost analysis

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Examples of NMGs

• Recreational amenities
• Safety / risk reduction
• Environmental quality
• Non-use values
• Option
• Bequest
• Existence

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Economic Theory

• Realm Microeconomics
• Domain Consumer Theory
• Utility Maximization or
• Cost (Expenditure) Minimization

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Economic Theory
Common Interpretation Willingness to pay
(WTP) Willingness to accept (WAC)
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Analysis Goals

• Estimate demand function for NMGor estimate CS,
  CV directly
• Estimate change in economic welfare to target
  population due to change in quantity or quality
  of NMG
• Find welfare maximizing price and quantity for
  NMG
• Make policy recommendations

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Estimation Methods

• Methods based on Revealed Preferences
• Travel Cost Models (TCMs)
• Hedonic Property Value Models (HPVMs)
• Methods based on Stated Preferences (Surveys)
• Direct elicitation
• Referendum-style methods
• Choice experiments

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Case Study I Day-Hiking in the Alpine Lakes
Wilderness (ALW)
NMG value of a day in the ALW (bundled good)
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Research Objectives

• Estimate demand system for 49 hiking zones
• Estimate welfare at zero entrance (parking) fee
• Estimate change in welfare due to implementation
  of trail park fees
• Compare welfare effects to expected revenues for
  Forest Service

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Data Methodology

• Data
• 14087 hiking groups 1995 data
• 49 trail heads (Hiking Zones)
• Focus on day hikers, WA residents
• 8750 obs. from 134 ZIPs retained
• Methodology
• Zonal TCM
• Aggregation-adjusted count data model

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Results
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Case Study II Effect of Daily Snow Conditions on
Skiers Resort Choices
NMG value of snowfall, temperature (snow
conditions)
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Research Objectives

• Estimate marginal effect of snow, temperature on
  skiers, boarders choice of destination
• Compare these effects to role of visitation
  history
• In marketing terms Product loyalty vs.
  Play-it-by-ear
• Make marketing recommendations to resort managers

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Data Methodology

• Data
• Trip history of 131 riders for 9 resorts, 151
  days
• SNOTEL data on temperature, precipitation
• Resort specifications from web sites
• Ticket prices from web, direct resort contact
• Methodology
• Multi-choice experiment
• Multinomial logit model with random coefficients
  (mixed logit)

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Results
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Results, contd
Mt. Rose Model without quality features
over-predicts loyalty effects
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Results, contd
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Case Study III Power Outage Costs to Residential
Customers
NMG Reliability of power and associated amenity
values Safety, Comfort, Productivity
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Research Objective

• Estimate value of reliability (cost of
  interruption) to households for different outage
  scenarios
• Examine effect of household characteristics on
  costs
• Examine effect of outage history on current
  reliability values
• Based on results, recommend priority
  neighborhoods to Utility

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Data Methodology

• Data
• 1482 Seattle households, 1999 data
• 5927 scenarios
• 10 bid levels
• Methodology
• Repeated dichotomous choice (referendum)
  questions
• Mixed gamma-normal estimation model

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Estimation Results
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Outage Costs Over Duration
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Outage Costs by Outage History (Combined Duration)
(Sample mean 12.25 hours in past 12
months, Sample median 4 hours in past 12 months)
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WTP for 1 Hr. Outage Past Duration vs. Past
Events