Fixed Costs and Recreation Value

16 Pages Posted: 21 Apr 2020

See all articles by Eric English

Eric English

Stratus Consulting Inc.

Joseph A. Herriges

Iowa State University - Department of Economics

Frank Lupi

Michigan State University - Department of Agricultural Economics

Kenneth McConnell

University of Maryland

Roger H. von Haefen

North Carolina State University - Department of Agricultural & Resource Economics

Date Written: July 2019

Abstract

Welfare 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.

Keywords: Deepwater Horizon, fixed and variable costs, Monte Carlo simulation, natural resource damage assessment, oil spills, recreation demand, recreational boating, short‐run consumer surplus, two‐part tariffs

Suggested Citation

English, Eric and Herriges, Joseph A. and Lupi, Frank and McConnell, Kenneth and von Haefen, Roger H., Fixed Costs and Recreation Value (July 2019). American Journal of Agricultural Economics, Vol. 101, Issue 4, pp. 1082-1097, 2019, Available at SSRN: https://ssrn.com/abstract=3578996 or http://dx.doi.org/10.1093/ajae/aaz012

Eric English (Contact Author)

Stratus Consulting Inc.

Joseph A. Herriges

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

Frank Lupi

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States
517-432-3883 (Phone)

Kenneth McConnell

University of Maryland

College Park
College Park, MD 20742
United States

Roger H. Von Haefen

North Carolina State University - Department of Agricultural & Resource Economics ( email )

Box 8109
3332 Nelson Hall
Raleigh, NC 27695-8109
United States
(919) 515-8946 (Phone)
(919) 515-1824 (Fax)

HOME PAGE: http://www.ag-econ.ncsu.edu/faculty/vonHaefen/vita.pdf

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