Using stated preference responses to address endogeneity in the single site travel cost equation

Adan L. Martinez Cruz, Itza Tlaloc QuYadira Elizabeth etzalcoatl Peralta Torres and Valeria Garcia Olivera
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Itza Tlaloc QuYadira Elizabeth etzalcoatl Peralta Torres: Division of Economics, CIDE
Authors registered in the RePEc Author Service: Adan L. Martinez-Cruz

No DTE 632, Working Papers from CIDE, División de Economía

Abstract: The travel cost (TC) method models the number of trips to a recreation site as a function of the costs to reach that site. The single site TC equation is particularly vulnerable to endogeneity since travel costs are chosen by the visitor. This paper suggests a control function approach that breaks the correlation between travel costs and the error term by plugging inferred omitted variables into the TC equation. Inference of omitted variables is carried out on an endogenous free, stated preference equation that, arguably, shares omitted variables with the TC equation. By revisiting the TC and contingent valuation (CV) data analyzed by Fixand Loomis (1998), this paper infers the omitted variables from the CV equation via a finite mixture specification -an inference strategy whose justification resembles the use of heteroscedastic errors to construct instruments as suggested by Lewbel (2012). Results show that not controlling for endogeneity in this particular case produces an overestimation of welfare measures. Importantly, this infer and plug-in strategy is pursuable in a number of contexts beyond recreation demand applications.

Keywords: Travel cost method; endogeneity; stated preference responses; control function (search for similar items in EconPapers)
JEL-codes: C26 C29 Q26 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2024-02
New Economics Papers: this item is included in nep-dcm, nep-ecm, nep-mac and nep-tre
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