Journal Article

Fixed Costs and Recreation Value

Lupi, Frank, Von Haefen, Roger H., English, Eric, Herriges, Joseph A., McConnell, Kenneth

2019

Overview

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.

• Publisher: John Wiley and Sons, Inc,Oxford University Press,Blackwell Publishing Ltd
• Subject: Accounting / Agricultural economics / Boating / Boats / consumer surplus / Consumers / Costs / Damage assessment / Deepwater Horizon / Expenditures / fixed and variable costs / Fixed costs / Monte Carlo simulation / natural resource damage assessment / Oil spills / Owners / Petroleum / Recreation / recreation demand / recreational boating / short‐run consumer surplus / Travel / two‐part tariffs / Value / variable costs / Welfare