China Economic Review 15 (2004) 398 406

Recreation demand and economic value: An application of travel cost method for Xiamen Island
Weiqi CHEN a, Huasheng HONG a, Yan LIU a, Luoping ZHANG a, Xiaofeng HOU a, Mark RAYMOND b,*
a

Ministry of Education Marine Environmental Laboratory/Environment Science Research Center, Xiamen University, Xiamen, Taiwan, ROC b Department of Economics, Saint Marys University, Halifax, Nova Scotia, Canada B3H 3C3 Accepted 21 October 2003

Abstract This paper uses the travel cost method to evaluate the recreational benefits of a beach along the eastern coast of Xiamen Island in China. Our results indicate that the total value for the beach and its associated recreation is in excess of US$53 million. This paper also discusses the protection of this significant tourism resource and considers the use of a suitable entrance fee. D 2003 Elsevier Inc. All rights reserved.
JEL classification: Q26 Keywords: Travel cost; Recreation demand

1. Introduction In recent years, the development of the southeastern area of Xiamen Island in the Peoples Republic of China has been proceeding at a rapid pace. Although the local government has identified tourism and recreation as dominant functions of the region, there has been a tendency for business and policymakers to place more weight on short-

* Corresponding author. Tel.: +1-902-420-5675; fax: +1-902-420-5129. E-mail address: mark.raymond@smu.ca (M. Raymond). 1043-951X/$ - see front matter D 2003 Elsevier Inc. All rights reserved. doi:10.1016/j.chieco.2003.11.001

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term direct economic benefits of development over the longer term benefits that are associated with recreational use. A key reason for the discounting of recreational benefits is that they are largely nonmarket public goods. As such, it is difficult to evaluate their economic value. In this paper, we utilize travel cost methodology in an attempt to estimate the recreational demand and economic value of a public beach along the eastern coast of Xiamen Island. Despite the various practical and theoretical problems in this methodology, it remains a popular technique in estimating the benefits from a particular outdoor recreational site.1 Our results are used to generate valuable economic information for local government policymakers. We find that the total value for the beach and its associated recreation is in excess of US$53 million. We consider the possible implementation of a small user fee, which could prove useful to the institutional management and protection of the coastal environment and natural resources in the area. The travel cost method is a well-used tool for nonmarket valuation. The interested reader may refer to Hanley and Spash (1993) and Smith (1989) for an overview. The travel cost method seeks to place a value on nonmarket resources or public goods by using consumption behavior in related markets. It is often used as an indirect method for estimating user benefits from visits to recreational sites such as beaches, parks heritage sites, and other major tourist attractions. It uses travel expenditure incurred in getting to the site as surrogate for the price paid by that visitor for a site visit. In some instances, this allows for the estimation of a demand function as well as the estimation of consumer surplus. Typically, the travel cost model can be applied in two alternative methods: the individual method and the zonal method. For the individual method, total costs can be included in a trip-generating function, which can be used to predict how many visits a given individual might undertake. In addition, included in the trip-generating function for an individual would be several individual socioeconomic characteristics. In the zonal method, travel cost expenditures for different zones of origin are regressed against per capita visitation rates from each zone, along with other zonal characteristics. To successfully apply the zonal travel cost method, one should typically observe higher travel costs from zones farther from the destination. We have adopted the zonal travel cost method in this study.2

2. Data An on-site survey on the beach along the eastern shore of Xiamen Island was conducted during the summer months of 1999, and was performed using a semi-interview questionnaire. Questions regarding the visitors zone of origin, travel costs, travel time, educational
1 See Chakraborty and Keith (2000), Dharmaratne and Alwyn (1998), Hanley (1989), Liston-Heyes and Heyes (1999), Menkhaus and Lober (1996), Willis and Garrod (1991), to name a few. 2 The interested reader may wish to consult Grandstatf and Dixon (1986), Hanley and Spash (1993), and Willis and Garrod (1991) for further reading regarding individual and zonal methods.

400 Table 1 Visitation rates Zone of origin (ZO) 1. XM 2. QZ 3. ZZ 4. FZ 5. LY 6. SM 7. PT 8. NP 9. ND 10. AH 11. BJ 12. GD 13. GX 14. GZ 15. HAN 16. HEB 17. HEN 18. HLJ 19. HUB 20. HUN 21. JL 22. JS 23. JX 24. LN 25. NX 26. QH 27. SD 28. SX 29. SH 30. YN 31. ZJ 32. SC 33. TJ 34. XJ S

W. Chen et al. / China Economic Review 15 (2004) 398406

Number of interviewees 218 24 9 21 32 17 5 11 5 17 11 19 1 1 1 5 4 4 24 5 1 25 23 3 1 1 11 9 10 1 17 22 1 1 560

Population ( pi) [in 10,000s] 126.59 654.19 441.54 579.82 282.49 264.96 291.82 300.4 319.01 6184 1242 7132 4677 3658 753 6566 9313 3776.7 5944 6512 2655 7197 4217 4171 541 507 8846 3610 1454 4173 4468 8540 957 1398.8

Visitation rate (vi/pi) [per 10,000] 9742.14 207.54 115.31 204.89 640.83 362.97 96.93 207.15 88.67 15.55 50.10 15.07 1.21 1.55 7.51 4.31 2.43 5.99 22.84 4.34 2.13 19.65 30.85 4.07 10.46 11.16 7.03 14.10 38.91 1.36 21.52 14.57 5.91 4.04

vi/pi: per ten thousand capita visitation rate for zone of origin. vi/pi =[(Number of interviewees/560) 3,168,000]/pi.

background, wage, and opinions on six of Xiamen Islands main tourist destinations were used in an attempt to gather travel and socioeconomic details. Visitors were approached at random, and a total of 560 effective questionnaires were collected.3 This represents approximately 9800 visitors.
3 The use of on-site user data implies some endogenous stratification and truncation. In our work, this is not of major concern. However, this does note some attention; interested readers may wish to consult Englin and Shonkwiler (1995) and Shaw (1988).

W. Chen et al. / China Economic Review 15 (2004) 398406 Table 2 Estimated travel costs Zone of origin (ZO) Total travel cost to Xiamen Island (TC) 0 40 29 49 59 56 37 77 104 117 287 168 319 386 267 134 75 297 122 163 274 170 67 288 142 193 129 178 121 164 183 188 193 320 Prorated total travel costs of trip to Xiamen Island (TCpro) 0 7 6 14 9 16 8 17 20 13 64 23 96 70 38 32 23 64 20 32 55 32 13 57 30 41 13 31 24 66 26 41 39 64 Total travel costs for trip to the beach (TCbeach) 10 6 13 10 5 6 10 11 5 19 9 29 0 0 39 16 16 10 19 14 24 13 18 16 29 12 13 9 18 1 14 16 27 36

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TCtotal = TCpro + TCbeach

1. XM 2. QZ 3. ZZ 4. FZ 5. LY 6. SM 7. PT 8. NP 9. ND 10. AH 11. BJ 12. GD 13. GX 14. GZ 15. HAN 16. HEB 17. HEN 18. HLJ 19. HUB 20. HUN 21. JL 22. JS 23. JX 24. LN 25. NX 26. QH 27. SD 28. SX 29. SH 30. YN 31. ZJ 32. SC 33. TJ 34. XJ

10 13 18 24 13 23 18 28 25 42 73 52 96 68 65 54 51 74 38 46 79 45 32 73 54 53 36 40 54 66 40 57 66 97

Travel costs contain the opportunity cost of travel time, and this was assumed to be a value equal to one third of the daily wage rate.4 The visitors zones of origin, ZO, was divided with respect to local government administrative districts. There is a total of 34 zones of origin. Our calculations indicate that 65% of the beachs visitors had higher education levels, and 72% had income levels at least as great as the medium income.

We recognize the considerable debate that surrounds the issue of the opportunity cost of time. However, for the purpose of this study, we wish to abstract from this debate and focus on the uniqueness of the data set. In addition, see Cesario (1976) and Wang (1994).

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Higher education refers to junior college, college, or university education, and the medium income refers to an income level between US$60 and 241 per month. In 1999, the total number of the visitors to the beach was approximated to be 3.168 million, according to onsite observation and some statistical information. The visitation rate to the beach from each zone of origin is defined as the estimated number of visitors from a given region divided by the regions population. The visitation rates for each zone of origin are summarized in Table 1. We consider the fact that there are several scenic spots on Xiamen Island. The beach along the eastern coast of Xiamen Island is just one of them. Since visitors are likely to visit multiple sites on any one trip, we assume that visiting the beach was not the sole purpose of an individuals journey from their zone of origin, except for the local people of Xiamen Island. Total travel costs were therefore prorated amongst the six main scenic spots of Xiamen. The prorating was based on the tourists opinions given on the questionnaire. This prorating allowed us to establish the average travel costs of a round trip (for the purpose of a visit to the beach) between the visitors zone of origin and Xiamen Island. We denote this cost as TCpro. Visitors to Xiamen Island and those who are residents on the island would both incur travel costs for the actual trip to the beach. The average travel costs of a round trip from the visitors residence or lodging on Xiamen Island to the beach itself, including on-site expenditures and the value of on-site time, is denoted TCbeach. The estimation of the value of on-site time was the same as that of travel time. The sum of TCpro and TCbeach is equal to the average total travel costs for an individual from their zone of origin to the beach on the eastern shore of Xiamen Island. We will denote this sum with TCtotal. These travel costs are listed in Table 2.

3. Estimation and results We denote the total number of visits to the public beach along the eastern coast of Xiamen Island by individuals from region i as vi. We will denote the travel costs by visitors from a given region as TCtotal,i. The population of the i regions is denoted pi and EDi denotes the percentage of the zone of origin who have higher education levels and TDi denotes a travel dummy equal to unity when travel has originated on Xiamen Island. Finally, Ii denotes the per capita net income of a given zone of origin. Table 3 provides a summary of these independent variables.5 We develop two trip-generating functions for the purpose of our empirical analysis, logvi =pi a b1 TCtotal;i b2 TDi b3 EDi and logvi =pi a b1 TCtotal;i b2 TDi b3 Ii 1b 1a

5 Statistic from China Statistical Bureau (1999), Fujian Statistical Bureau (1999), and Xiamen Statistical Bureau (1999).

W. Chen et al. / China Economic Review 15 (2004) 398406 Table 3 Other independent variables Zone of origin (ZO) 1. XM 2. QZ 3. ZZ 4. FZ 5. LY 6. SM 7. PT 8. NP 9. ND 10. AH 11. BJ 12. GD 13. GX 14. GZ 15. HAN 16. HEB 17. HEN 18. HLJ 19. HUB 20. HUN 21. JL 22. JS 23. JX 24. LN 25. NX 26. QH 27. SD 28. SX 29. SH 30. YN 31. ZJ 32. SC 33. TJ 34. XJ TD 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 I 846 495 385 474 328 367 388 303 309 303 676 698 316 233 400 357 280 332 356 342 312 495 302 353 239 226 375 251 848 268 590 295 574 261

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ED 7.18 2.40 2.10 4.67 2.96 2.70 1.97 2.30 1.85 1.83 13.44 3.67 0.93 2.00 2.32 2.10 1.60 4.75 3.39 2.02 5.00 2.05 1.88 6.02 3.26 2.01 1.49 2.99 8.89 1.24 2.50 1.99 7.27 5.58

TD: transportation condition from zone of origin to the beach (dummy variable). I: per capita net income (US$ per year) of zone of origin. ED: percentage of population in zone of origin who had higher education.

The regression results are given in Table 4a and b, respectively. We separate the inclusion of the education and income variables due to their collinearity. The adjusted R2 value and the F statistic indicate the overall significance of the independent variables. The coefficient for total travel costs, TCtotal, is negative and significant at the 1% level in both regressions, implying that as travel cost increases, the visitation rate decreases. Our results also indicate that income, education, and residing in Xiamen Island are also significant indicators of beach visitation. For all of these variables, the estimated coefficient is positive and significant.

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4. Policy considerations To estimate the relationship between the number of visitors and the total cost of the trip, we use the estimated coefficients from the regression in Table 4a to calculate visitation rates from each zone of origin as we increase total travel costs in six-dollar increments. Specifically we have logvi =pi 5:43 0:268EDi 2:55TDi 0:073TCtotal;i 2

For example, when the entrance fee is equal to 0, the total costs for the zone of origin XM is US$10. If an entrance fee of US$6 is charged so that total costs increase to US$16, we are then able to estimate the visitation rate at an entrance fee of US$6. We continue to raise the entrance fee in six-dollar increments until the estimated number of visits is less than 0.1. We completed this for each of the 34 regions. Finally, the total number of visitors from all zones of origin is summed according to the entrance fee. With the entrance fee and visitation rate data in hand, our next step was to obtain a functional form for the relationship between estimated visits total costs. Using commercially available software, we approximated the relationship between entrance fee and number of visitors with the following function: Pfee 860:7 102:8lnQv 3

where Pfee denotes the price of entry and Qv is number of visitors. The aggregate recreational benefits from the beach along the eastern coast of Xiamen Island is estimated by measuring the area under our quasi-demand curve given in Eq. (3). To find the estimate

Table 4 Regression results Variable Est. coefficient t Statistic

(a) Dependent variable: log(vi/pi) (education variable included) Constant Total transportation cost Transportation dummy Income Adjusted R2 = 0.77 Standard error = 0.96 F statistic = 37.89 4.780 0.060 2.821 0.003 7.77 7.98 2.48 2.24

(b) Dependent variable: log(vi/pi) (income variable included) Constant 5.425 Total transportation cost 0.073 Transportation dummy 2.550 Education 0.268 Adjusted R2 = 0.84 Standard error = 0.79 F statistic = 59.86

15.74 10.78 2.85 4.59

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for aggregate recreational benefits, we calculated the definite integral for Eq. (3) from 0 to 1100. Our estimate for the aggregate recreational benefits from the beach in 1999 was US$53.5 million. This equates to a per visitor, per visit consumer surplus of approximately US$16.9. Despite our estimations, the order of magnitude of our results appear to be quite reasonable.

5. Comments and conclusions The results of this study indicate that the aggregate recreational benefits from the beach along the eastern shore of Xiamen Island were approximately RBM$ 53.5 million per year. The findings demonstrate that the beach, as a nonmarket good, has its own economic value and considerable economic benefits. The decision to declare tourism and recreation as the dominant function of the area, recently made by the government, seems to be a reasonable one. However, the maintenance of such benefits depends on the effective management and protection of the coastal environment and the beach itself. The degradation of coastal environment and beach quality could lead to substantial loss in value, which eventually would be reflected in the reduced number of visitors and shortened visits. This implies that the loss of significant economic benefits has to be considered in the decision to development such regions. Due to the expense of maintaining the coastal beach area, policymakers may wish to consider the implementation of a user access fee. Consider that if 5% of the benefits from the beach are recovered through the implementation of a user fee for the beach (such as a beach pass), more than $2.675 million in annual revenue could be generated. For the individual visitor, this works out to approximately US$0.84 per visitor, per visit. Considering the cost of many competing entrance fees, both scenic and otherwise, this appears to quite feasible.

Acknowledgements This research was funded by the UPCD Tier 1 Program # 1843-S53305 titled Community-Based Conservation Management in China and Vietnam. This program was sponsored by the Canadian International Development Agency (CIDA). We are grateful to seminar participants at the International Conference on Environmental Concerns and Emerging Abatement Technologies, Beijing. All errors remain ours.

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