An Economic Model for Valuing Recreational Angling Resources in Michigan John P. Hoehn, Theodore Tomasi, Frank Lupi, and Heng Z. Chen Department of Agricultural Economics Michigan State University Volume I: Main Report December, 1996 Report Submitted to Environmental Response Division Michigan Department of Environmental Quality and Fisheries Division Michigan Department of Natural Resources An Economic Model for Valuing Recreational Angling Resources in Michigan Dr. John P. Hoehn (PI),1 Dr. Theodore Tomasi (PI),2 Frank Lupi,1 and Dr. Heng Z. Chen1 Report Submitted to: Environmental Response Division Michigan Department of Environmental Quality and Fisheries Division Michigan Department of Natural Resources December 1996 1 Department of Agricultural Economics 2 College of Marine Studies Michigan State University University of Delaware East Lansing, MI 48824-1039 Newark, DE 19716 © 1996 by John P. Hoehn, Theodore Tomasi, Frank Lupi and Heng Z. Chen. All rights reserved. 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Table of Contents Volume I: Main Report Page List of Tables .................................................................. v List of Figures ................................................................. vi List of Abbreviations .......................................................... vii Mathematical Symbols ........................................................ viii Acknowledgments ............................................................. ix Chapter 1 Overview of the Project .......................................... 1 1.1 Background 1.2 Uses of the MSU Model 1.3 Overview of the Research Process and the Report Chapter 2 Economic Value and Its Measurement ............................ 6 2.1 The Concept of Economic Value 2.1.1 Money measures of value 2.1.2 Willingness to pay and willingness to accept 2.1.3 Compensatory resource restoration 2.1.4 Recreational use, direct use, and passive use values 2.2 Measurement of Value 2.2.1 The travel cost method 2.2.2 Economic benefits versus economic impacts 2.2.3. Valuing injuries using recreation demand 2.2.4 Components of the travel cost model Chapter 3 Random Utility Models .......................................... 18 3.1 The Basic Choice Model 3.2 Estimating the Choice Model 3.3 Nested Models 3.4 Welfare Estimation 3.4.1 WTP per trip 3.4.2 Expected WTP 3.4.3 Welfare measurement in the nested model 3.4.4 Aggregation 3.5 Participation iii Chapter 4 The MSU Random Utility Model ................................. 33 4.1 Model Structure 4.1.1 Trip and site types 4.1.2 Choice occasions 4.1.3 Nesting structure 4.2 Variables 4.2.1 Site Level Variables 4.2.2 Other levels of nesting 4.2.3 Estimation 4.3 The Survey Data 4.3.1 Survey overview 4.3.2 The survey sample 4.3.3 The design of the survey 4.3.4 The analysis sample 4.4 Estimation Results 4.5 Model Predictions Using the Baseline Data 4.5.1 Procedure for predicting trips 4.5.2 Statewide predictions of trips 4.5.3 Single day trips 4.5.4 Multiple day trips 4.5.5 County level predictions Chapter 5 Welfare Measurement with the MSU Model ...................... 71 5.1 Using the Existing Model 5.1.1 Inland lakes 5.1.2 Great lakes and anadromous runs 5.1.3 Rivers and streams 5.1.4 The value of Great Lakes fish 5.1.5 Resource based compensation 5.2 General Themes from Policy Scenarios 5.3 Further Research 5.3.1 Additional variables 5.3.2 Redefining sites 5.3.3 Contingent behavior 5.3.4 Technical extensions of the model References ................................................................... 93 Volume II: Technical Appendices Appendix 1: Model Specification ............................................ 97 Appendix 2: Survey of Michigan Anglers ................................... 169 iv List of Tables Page Table 4.1: Product Line (PL) Descriptions ......................................... 35 Table 4.2: Description of Nesting Groups at the Product Line Level .................... 38 Table 4.3: Estimated Parameters from the Trip Stage of the Model..................... 55 Table 4.4: Participation Choice Level Parameters ................................... 58 Table 4.5: Statewide Estimates of Fishing Trips and User Days in Michigan During the April to October Season ................................................ 61 Table 4.6: Predicted Demand for Single Day Trips by County and by PL for April through October ..................................................... 67 Table 4.7: Predicted Demand for Multi-Day Trips by County and by PL for April through October ............................................................ 69 Table 5.1: Changes in Fishing Trips and User Days for Hypothetical Closure of Higgins and Houghton Lakes ................................................. 75 Table 5.2: Changes in Fishing Trips and User Days for Hypothetical 10% Increase in Trout and Salmon Catch Rates at all Lake Huron Sites .................... 80 Table 5.3: Changes in Fishing Trips and User Days for Hypothetical Change from Second to Top Quality for 100 Miles of Streams in Oakland County ................ 83 v List of Figures Page Figure 2.1: Travel Cost Demand Curve............................................. 13 Figure 2.2: Consumer Surplus ................................................... 14 Figure 3.2: Hypothetical Nesting Structure for a Nested RUM .......................... 26 Figure 4.1: Four Level Nesting Structure for Each Choice Occasion: Participation, Trip, Product Line, and Site Levels ........................................... 40 Figure 4.2: Structure of Panel Interview .......................................... 50 Figure 4.3: Trips and User Days by Type of Water Body . ............................ 61 Figure 4.4: Trips and User Days by Target Species Type . ............................. 62 Figure 4.5: Michigan Population, Percent per County ................................ 62 Figure 4.6: Distribution of Predicted Single Day Trips . ............................... 63 Figure 4.7: Distribution of Predicted Multiple Day Trips . ............................. 65 Figure 5.1: IL Warm Single Day Trips under Roscommon Policy ...................... 76 Figure 5.2: IL Warm Multi-Day Trips under Roscommon Policy ...................... 77 Figure 5.3: Lake Huron Counties ................................................. 78 Figure 5.4: Single Day Trips under Oakland Policy .................................. 84 Figure 5.5: Multiple Day Trips under Oakland Policy ................................ 85 Figure 5.6: Michigan Counties ................................................... 96 vi List of Abbreviations Anad Anadromous run species of fish. CATI Computer assisted telephone interviewing. CERCLA Comprehensive Environmental Response, Compensation, and Liability Act. CR Catch rates for fish. DEQ Department of Environmental Quality. FIML Full information maximum likelihood estimation. GEV Generalized extreme value distribution. GL Great Lakes. IIA Independence of irrelevant alternatives. IL Inland lakes. IPPSR Institute of Public Policy and Social Research. IV Inclusive value. MDNR Michigan Department of Natural Resources. MERA Michigan Environmental Response Act. MSU Michigan State University. NOAA National Oceanic Atmospheric Administration. NRDA Natural Resource Damage Assessment. OPA Oil Pollution Act. Part 201 Part 201 (Environmental Response) of Natural Resources and Environmental Protection Act, 1994 PA 451, As Amended -- Michigan. PCB's Polychlorinated biphenyls. PI Principal Investigators PL Product line. RS Rivers and streams. RUM Random utility model. SRD Survey Research Division. SSI Survey Sampling Incorporated. SWTP Seasonal willingness to pay. TCM Travel cost method; travel cost model. WTA Willingness to accept. WTAR Willingness to accept in resources . WTP Willingness to pay. WTPR Willingness to pay in resources. vii Mathematical Symbols (In order of appearance) Y Income. P Price. Q Generic variable for environmental quality or fishing quality. V Utility; Conditional indirect utility. WTP$ Willingness to pay in dollars. WTA$ Willingness to accept in dollars. R Generic variable for resources; e.g., lake acreage. A Generic variable for species existence; e.g., anadromous species. WTAR Willingness to accept in resources. WTPR Willingness to pay in resources. S Generic variable for site characteristics; e.g., shoreline development. M Variable representing market goods h Indicator for individuals (Chapter 3). A,B Indicator for two hypothetical sites, A and B (Chapter 3). (cid:7) Parameters of the utility function. (cid:15) Error term in RUM model; the unmeasured characteristics of individuals and sites; "personalized term". K Some unspecified constant, a number represented by K. % Probability; %A probability site A is visited; %P probability of participating in recreation. exp Represents the exponential function. * Summation operator. ln Natural logarithm. j,k Site indicator variables. X Vector of variables describing the characteristics of alternative j. j L Set of available sites within a branch of a nested logit model. H,L Indicators for "high" and "low" values of some variable. IV Inclusive Value index; IV + constant equals the expected maximum conditional indirect utility of some set of sites in a RUM model. D Akin to IV, but for nested logit models. T Number of choice occasions in a repeated logit model. W Generic variable capturing other variables at the participation level of a model. N Number of fishing trips or the expected number of trips. viii Acknowledgments We are indebted to many individuals who have assisted and participated in this project. Brian Monroe, our liaison in the Environmental Response Division of the Michigan Department of Environmental Quality, was extremely helpful and accessible throughout the course of the research. Douglas B. Jester, Jr., our liaison in the Fisheries Division of the Michigan Department of Natural Resources, provided valuable guidance and actively participated in the development of the model. We are particularly grateful to Mr. Jester for sharing his broad knowledge of Michigan anglers and fishing in Michigan, as well as his experience with previous data collection and modelling efforts. During the research process and the progress of the project the MSU team obtained feedback and advice from an outside panel of experts. This panel included Dr. Richard Carson of the University of California at San Diego, Dr. Michael Hanemann of the University of California at Berkeley, Dr. Edward Morey of the University of Colorado, and Dr. George Parsons of the University of Delaware. The MSU team had several meetings with the review panel as a whole and discussed matters with them individually at various times. Their input and openness is appreciated. During the course of the research, Dr. Carol Jones of the National Oceanic Atmospheric Administration's Damage Assessment Center provided valuable comments and shared experience from similar research in Michigan. In particular, we have made extensive use of the earlier model of fishing in Michigan that Dr. Jones developed with Dr. Yusen Sung. In addition, Dr. Wiktor Adamowicz of the University of Alberta and Dr. Douglass Shaw of the University of Nevada provided valuable comments during the course of the research. We have also benefited from general conversations with Dr. Peter Feather of the United States Department of Agriculture's Economic Research Service. We thank all the individuals from the Survey Research Division of the Institute for Public Policy and Social Research (IPPSR) at Michigan State University who worked on the survey. Dr. Jack Knott, Director of IPPSR, and Dr. Larry Hembroff, Survey Director, were instrumental in keeping the survey on track. Ms. Ning Na of IPPSR's Survey Research Division deserves recognition for managing the survey research. Special thanks are owed to all the interviewers for their service and for their input and contributions during the survey design phases. ix Several colleagues at Michigan State University helped us to profile Michigan anglers and fishing in Michigan including Dr. Douglas Krieger of the Department of Agricultural Economics, Drs. Jim Bence and Shari Dann of the Department of Fisheries and Wildlife and Dr. Daniel Spotts of the Travel, Tourism, and Recreation Resource Center. Drs. Jeffrey Wooldridge and Peter Schmidt of the Department of Economics offered advice on econometric questions that arose over the course of the project. We thank Tiffany Phagan for taking an interest in and making contributions to the project. Thomas Moen provided excellent research assistance and deserves special recognition for his contributions to the policy programs. Thanks are due to Chenfeng Lin and Jason Nolan who assisted with data management and especially to Christian De Ritis for staying on to code all the fishing sites. We thank our department chair, Dr. Lawrence Hamm, for his support of the project and his insights into angling in Michigan. We are especially grateful to Nicole Alderman, Vicky Branstetter, and Janet Munn of the Department of Agricultural Economics at MSU who have all helped to smooth and decode the administrative aspects of the project. While we have benefited from the insights and efforts of all of the above mentioned individuals, the authors are solely responsible for the content of this report. x