The Validity Of Travel Cost Method Based On Monte-Carlo Simulation

In recent years,protecting environmental resources has received more and more attention globally.How to properly value environmental resources is an important key to help governments develop more effective environmental policies.In the literature,Travel Cost Method(TCM)is a widely used revealed preference method to indirectly estimate the value of environmental resources through observing consumption of related commodities.TCM relies on weak complementarity(WC)as a maintained assumption.WC assumes non-visitors have no value for environmental resources related to the site.However,the existence of non-use values will invalidate the assumption of WC,which can affect the quality of welfare measures estimated by TCM.This thesis examines the validity of TCM using Monte Carlo simulation.The true models are constructed using both the linear and semi-log demand models in addition to three different structures considered in the indirect utility function.The specification of our true models ensures that WC is not automatically imposed.Both uncompensated and compensated welfare measures are examined in this thesis using normalized root mean squared errors.Furthermore,given that survey respondents may not be able to recall past events perfectly,this thesis also examines the impact of recall errors on the performance of TCM.Without recall errors in the true models,there are three main findings.First,if WC is satisfied in the true models,TCM performs well as expected.Second,the performance of TCM deteriorates with a higher degree of violation of WC.Third,use values estimated by TCM does not necessarily provide a lower bound of the actual total value of environmental resources if WC is violated.With recall errors in the true models that satisfy WC,this thesis finds that the quality of compensated welfare measures estimated using the residual instead of ignoring it declines with a higher degree of recall errors.