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ECON 614 – Valuing Public Goods

Homework Assignment #3

Instructions:

        This assignment can be undertaken in groups of no more than three students. Please answer all of the following questions as best as possible. If you have any questions please see me immediately. Partial credit will be awarded when it is earned. This assignment is due Thursday, November 11th, prior to by 11:59pm. Homework should be turned in via e-mail as a .pdf file. You should label your homework LastNames_HW#3.pdf where LastNames is the last names of all members of the group. Your assignment should be typeset in 12pt font, double spaced and display sound grammar and spelling.

1. (80 Brownie Points) For this example you will estimate a single site travel cost model. Your approach will follow Table 3 in the Parsons chapter. First, consider the travel cost model estimates that Parsons describes in Table 3, Maumee Bay column.

(a) Explain why the coefficient on travel cost is negative and why this makes sense.

(b) What does the negative coefficient on water quality mean for the Maumee Bay estimates? Do you think this coefficient should be negative?

(c) Why does the positive coefficient on travel cost to a substitute site imply for the Maumee Bay estimates?

(d) Now, using the data in lake_erie_beach_data_maumee.csv please answer the following questions:

i. What is the average income level of survey respondents (this variable is denoted income)?

ii. What is the average number of trips taken (this variable is denoted tthsbch2)?

iii. Is there evidence of over-dispersion for trips to Maumee Bay?

iv. Estimate a Poisson regression model of travel cost for Maumee bay. Your covariates will be income (income), travel cost (ptrcst30), substitute site cost (zcctcst3), Likert scale measures for water quality (q1), maintenance (q2), cleanliness (q3), congestion (q4), and facilities (q5), along with an indicator is the trip’s sole purpose was to recreate on the beach (you will have to construct this variable by hand using (pbeach). Present your coefficient estimates and standard errors in tabular form.

v. Comment on differences in sign, magnitude and statistical significance (if any) from your estimates to those in Parsons.

vi. How does you estimate on travel cost to Maumee Bay differ from Parsons?

vii. What does the negative coefficient on the water quality scale variable imply about trips to the beach?

viii. What is the per-person-per-trip value that is estimated from the Poisson regression model.

ix. Now estimate a negative binomial regression model using the same speci-fication. Present your coefficient estimates and standard errors in tabular form (for ease present both sets of estimates in one table with two columns.

x. Comment on differences in sign, magnitude and statistical significance (if any) from your estimates to those from your Poisson regression model.

xi. What is the per-person-per-trip value that is estimated from the negative binomial regression model.

2. (20 Brownie Points) What does the use of a single site model to value a site closure miss relative to a multi-site model?

3. (20 Brownie Points) Explain why the IIA assumption is a limitation of the standard multinomial choice framework for the random utility model? How might this matter for a business if they were considering using a random utility model to assess consumer preferences?