Environmental Economics

ECO 605: Module Four Case Study Guidelines and Rubric

Overview: The case studies in this course are designed to actively involve you in environmental economics reasoning and to help you apply the course principles to complex real-world situations. In the case studies, you will use data analysis to make informed recommendations and communicate in a professional manner.

The Module Four Case Study examines data with the travel cost method. In your submission, you will demonstrate the following skills:

1. Apply an appropriate type of cost-benefit analysis and compare it to the contingent valuationmethod. 2. Define the collection source for data. 3. Collect data on the number of visitors from each zone and the number of visits made in the last year. 4. Calculate visitation rates. 5. Calculate the average round-trip travel distance and travel time for each zone. 6. Write recommendations for an influential association of homeowners and businesses and describe the advantages of the travel cost

method over other methods. 7. Construct the demand function with the use of results from regressionanalysis. 8. Write a summary of the benefit-cost analysis on programs to control pollution.

Prompt: The objective of this case study is to analyze data and make recommendations for the improvement of the water quality in a local lake. Describe the required data and the rationale for using the travel cost method. Prepare your analysis as though you were hired by an influential association of homeowners and businesses that are interested in the local lake’s water quality. The analysis and recommendations you provide will help determine the benefits for improving the water quality of the lake. You must take the steps listed below to complete this case study.

 Step 1 Describe the rationale for using the travel cost method. Compare the travel cost method to the contingent valuation method in your description.

 Step 2 Define the zones surrounding the lake. These may be defined by concentric circles around the lake or by geographic divisions. Choose what makes sense, such as counties or other distinguishable boundaries that surround the lake at different distances. Add a graphic to enhance the definition and description.

 Step 3 Explain how you will collect data. Focus on the number of visitors from each zone and the number of visits made in the last year. For this example, assume the staff at the lake has records of the number of visitors and their zip codes. This will be used to calculate the total number of visits per zone over the last year. To extend the value of the analysis, explain the value of more precise data and what it takes to analyze this additional data. More information on this approach is found on the companion website to the course textbook (relevant pages for Chapter 7).

 Step 4 Calculate the visitation rates per 1,000 population in each zone. These are the total visits per year designated by each zone, divided by the zone’s population in thousands. An example is shown below. Use Microsoft Excel (or something similar) to calculate the rates.

Visitation Rates per 1,000 Population

Zone TotalVisits/Year Zone

Population Visits/1,000

0 400 1,000 400 1 400 2,000 200 2 400 4,000 100 3 400 8,000 50

Beyond 3 0

Total Visits 1,600

 Step 5 Calculate the average round-trip travel distance and travel time for each zone. Assume that people in Zone 0 have a travel distance and time of zero. Every other zone has increasing travel time and distance. Next, using average cost per mile and per hour of travel time, calculate the travel cost per trip. A standard cost per mile for operating an automobile is readily available from AAA or similar sources. Assume that cost per mile is $.30, or use the current expense rate found on the IRS website. The cost of time is more complicated. The simplest approach is to use the average hourly wage. For this example, assume it is $9 per hour (or $.15 per minute) for all zones, although in practice it is likely to differ by zone. Generate calculations using Microsoft Excel or a similar program.

Average Round-Trip Travel Distance and Travel Time Zone Round-Trip Travel

Distance Round-Trip Travel Time

Distance Times Cost/Mile ($.30)

Travel Time Times

Cost/Minute ($.15)

Total Travel

Cost/Trip

0 0 0 0 0 0 1 20 30 $6 $4.50 $10.50 2 40 60 $12 $9.00 $21.00 3 80 120 $24 $18.00 $42.00

 Step 6

For additional practice, add one to two more zones with additional data.

To estimate using regression analysis, use an equation that relates visits per capita to travel costs and other important variables. From this, estimate the demand function for the average visitor. In this simple model, the analysis might include demographic variables, such as age, income, gender, and education levels, using the average values for each zone. To maintain the simplest possible model, calculate the equation with only the travel cost and visits/1,000.

Visits/1,000 = 330 – 7.755*(Travel Cost)

 Step 7 Construct the demand function for visits to the lake, using the results of the regression analysis. The first point on the demand curve is the total visitors to the lake at current access costs (assuming there is no entry fee for the lake), which in this example is 1,600 visits per year. The other points are found by estimating the number of visitors with different hypothetical entrance fees (assuming that an entrance fee is viewed in the same way as travel costs). Enter the total number of visits.

Demand Function Zone Travel Cost plus

$10 Visits/1,000 Population Total Visits

0 $10 252 1,000 252 1 $20.50 171 2,000 342 2 $31.00 90 4,000 360 3 $52.00 0 8,000 0

Total Visits

For additional practice, add one to two more sets of data.

This gives the second point on the demand curve (enter the sum of the total visits into the gray shaded area). Use the total number of visits and multiply it by an entry fee of $10. Then calculate in the same way for the number of visits at each of the increasing entry fees to get the totals listed below. (Use a program such as Microsoft Excel to enter data and then plot a graph.)

Entry Fee Total Visits $20 409 $30 129 $40 20 $50 0

 Step 8

These points give the demand curve for trips to the lake.

Now estimate the total economic benefit of the lake by calculating the consumer surplus (or the area under the demand curve). This results in a total estimate of economic benefits from the lake uses around $23,000 per year, or around $14.38 per visit ($23,000/1,600). Remember that the objective is to determine whether it is worthwhile to spend money to protect the lake by

implementing programs to improve the water quality. If the actions cost less than $23,000 per year, the cost will be less than the benefits provided by the lake. If the costs are greater, the staff will decide whether other factors are worthwhile. You should make recommendations that will influence a decision on whether it is worthwhile to spend money on programs to improve the water quality of the lake over the long run and the short run. Also make recommendations on the additional information to gather in a survey to enhance this study. Create a report with recommendations based on your analysis.

Rubric Guidelines for Submission: The case studymust follow these formatting guidelines: double spacing, 12-point Times New Roman font, one-inch margins, and APA citations. Your submission should be one to two pages in length (not including cover page and references).

Critical Elements Exemplary (100%) Proficient (90%) Needs Improvement (70%) Not Evident (0%) Value Rationale Meets “Proficient” criteria

and extends with compelling rationale on the benefits of the travel cost method with a comparison to other methods, such as contingent valuation

Introduces the report with a clear description on the rationale for the use of the travel cost method

Attempts to introduce the report with a rationale for the use of the method for the analysis, but the description is not clearly explained or it is missing correct information

There is no evidence or rationale for the method used in this report

10

Zones Meets “Proficient” criteria and extends by defining the source of the data from the surrounding area and incorporates a graphic with concentric circles from around the lake

Defines the zones surrounding the lake

Attempts to define the zones surrounding the lake, but at least one detail is incorrect

The definition of the zones is incorrect or missing completely

10

Data Collection Meets “Proficient” criteria and extends the reports value by describing additional data to be collected that would enhance the current data and analysis value

Describes the collection of data using the example of the lake staff providing records of the number of visitors and their zip codes as part of the visits per zone

Attempts to describe the collection of data, but there is an error or missing information

There is no attempt to describe the data collected

10

Visitation Rates Meets “Proficient” criteria and extends the calculations with additional relevant data and adds it to the graph of the zones and visits/1,000

Generates accurate calculations of the data with the use of a program such as Excel and generates a graph of the zones and visits/1,000

Attempts to generate calculations of the data with the use of a program such as Excel, but there are errors in the data or the graph

There is no analysis or proper use of the data

10

Travel Cost per Trip Meets “Proficient” criteria and extends to include additional data that enhances the graph

Calculates the travel costs and trips by zone using the data provided with the use of a program such as Excel to generate a representation of the information in a graph

Attempts to calculate the travel costs and trips by zone using the data provided, but there is an error in the data or graph

There is no calculation of the travel costs and trip by zone or no graph

10

Estimation Meets “Proficient” criteria and extends calculations and the regression analysis to include more variables that go beyond the simplest travel cost and visits/1,000

Estimates using the regression analysis of the visits per capita to travel costs and other important variables

Attempts to use regression analysis of the visits per capita to travel costs and other variables, but there is an error in the equation or the use of data

There is no regression analysis of the visits per capita to travel costs

10

Demand Function Meets “Proficient” criteria and extends demand function for visits to the lake by adding supporting data to enhance the graph

Constructs the demand function for visits to the lake using the results from the regression analysis; enters data into a program such as Excel and creates a graph to represent the data and regression analysis

Attempts to construct the demand function for visits to the lake, but the data has errors or there is no graph to represent the data and regression analysis

There is no construct demand function for visits to the lake

10

Total Economic Benefit

Meets “Proficient” criteria and extends to include additional recommendations that enhance this analysis with good questions to ask for more data to improve the analysis

Uses the data provided to create a summary of the benefit-cost analysis with recommendations on short- run and long-run costs of programs that will control pollution; writes in a way that will influence a target audience of homeowners and businesses

Attempts to use the data in the analysis, but at least one data source is not identified or is used incorrectly

There is no analysis or data used correctly to make accurate recommendations

20

Articulation of Response

Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy to read format

Submission has no major errors related to citations, grammar, spelling, syntax, or organization

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

10

Earned Total 100%

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