Valuing Our Natural Environment Final Report ... - HM Treasury

Valuing Our Natural Environment – Final Report - Annex1
A1.1.5.4 Process of implementation
The random utility model may be derived from a travel cost survey:
1. A questionnaire is administered to a sample of visitors at a selection of recreation sites
in order to ascertain their place of residence, demographic and attitudinal information,
frequency of visit to the site and others, trip information (purposefulness, length,
associated costs etc). The survey will also collect data about the characteristics of each
site.
2. From the survey data, the probability that an individual will visit a given site is
estimated on the basis of the costs of visiting the site and characteristics of the site
relative to the characteristics of all of the sites the individual may choose between.
The stage of the analysis requires that the functional form of the utility function be
specified by the researcher.
3. The monetary value of changes in the quality of site characteristics may then be
estimated by relating the relevant function coefficient to the coefficient of travel cost.
This yields an estimate of willingness to pay for a marginal change in the level of the
site characteristic.
Practical applications of the RUM need to avoid violation of independence of irrelevant
alternatives (IIA) property, which states that the relative probabilities of two choice
options being selected are unaffected by the introduction of removal of other alternatives
(Bateman et al., 2002). This situation is typically avoided by application of a nested model
of choice, where an individual is assumed to choose first the type of recreation activity and
then choose the site to visit within the activity category.
A1.1.5.5 Data needs
Application of the RUM requires a travel cost survey to collect data on visitors to a
selection of recreation sites, including data on the place of residence of visitors,
demographic and attitudinal information, frequency of visit to the site and other similar
sites and trip information (e.g. purposefulness, length, associated costs etc). Survey data is
also required on the specific characteristics of different recreation sites and the level of
the quality of these characteristics.
A1.1.5.6 Other practical issues for implementation
Aside from the collation of appropriate survey data, the RUM requires econometric
expertise. The timescale for analysis will typically depend on the length of survey stage and
sample size. Given this, implementing the RUM approach may require a time frame from 6
months to one year, allowing for data analysis.
A1.1.5.7 Principal outputs
Random utility models yield an estimate of willingness to pay for incremental changes in
the quality of recreation site characteristics, which typically include environmental goods
and services. These estimates of value are consistent with underlying economic theory of
welfare.
A1.1.5.8 Transferability of outputs
The transferability of estimates of the value of environmental goods and services is likely to
be limited. Principally, the estimates of value which are derived are based on the relative
levels of different characteristics for each of the sites included in the analysis; hence
values may change if different sites were included in the analysis. Secondly, in terms of
benefits transfer, it is necessary to assume that travel costs would remain constant in the
study and policy site contexts.
A1.1.5.9 Key uses – decision-making context(s)
The RUM provides estimates of the use value associated with different characteristics (e.g.
environmental goods and services) associated with recreation sites. As such, the RUM is
suited to inputting to cost-benefit analysis of projects which may affect specific aspects of
recreational sites.
eftec A16
December 2006