Recreation Demand Choices and Revealed Values of Leisure Time

By Larson, Douglas M.; Shaikh, Sabina L. | Economic Inquiry, April 2004 | Go to article overview

Recreation Demand Choices and Revealed Values of Leisure Time


Larson, Douglas M., Shaikh, Sabina L., Economic Inquiry


I. INTRODUCTION

At least since the work of Becker (1965), it has been recognized widely that time may play an important role in consumer demand. One of the areas where this may be most significant empirically is in the valuation of natural resource amenities through their associated recreation demands. A principal reason is that recreation is a time-intensive commodity, so that the value of the time spent in recreation would be expected to play a large role in its overall value. The potential bias to consumer's surplus estimates of the net economic value of recreation from excluding time "prices" from the demand model has been recognized from the outset, for example by Knetsch (1963) and Clawson (1959).

To incorporate time into recreation demand models, researchers have generally adopted the practice suggested by McConnell (1975) of defining the "full" price of recreation as the money cost of a trip plus its monetized time cost, though the use of "full" budgets also called for by the Becker approach is less widespread. Bockstael et al. (1987) pointed out quite clearly that both full budgets and full prices are required in the demand function if the recreationist is jointly choosing labor supply with recreation at an exogenous marginal wage, but that the structure of demand was unclear if the individual was not making such marginal labor supply choices (i.e., if he or she was working fixed hours). Subsequently, Larson and Shaikh (2001) showed that the full prices--full budgets specification is sufficient to satisfy the constraints on demand parameters that arise because choice is made subject to two binding constraints, regardless of the individual's position in the labor market. They also pointed out that models that use full prices but only money income (in effect ignoring the role of time as a resource constraint) cannot be consistent with the requirements of choice subject to two constraints.

Although the outlines of how time should enter the structure of demand are becoming clear, a major unresolved issue is how to determine its value in practice. Several studies have followed the basic logic of Becker's early work, assuming that the opportunity cost of recreation time (i.e., the value of other time forgone in favor of recreation) is an exogenous parameter, such as the average wage rate or, more commonly, some fraction thereof. This fraction is either chosen arbitrarily or estimated as part of the recreation demand model, as in Cesario (1976), McConnell and Strand (1981), and Smith et al. (1983).

Such assumptions may be erroneous for a variety of reasons. Assuming the average wage is the appropriate opportunity cost of time presumes that the individual faces no constraints on hours worked, derives no utility or disutility from work, and has a linear wage function, as has been noted by Chiswick (1967), Bockstael et al. (1987), and Smith et al. (1983). This is unlikely to be true for many people. Assuming some constant fraction of the wage is the opportunity cost of time, especially an arbitrarily chosen fraction, also seems likely to be incorrect for most people. For all of these reasons, an individual's average wage does not necessarily reveal anything about the shadow value of discretionary leisure time, either as an upper or lower bound.

In a recent advance, Feather and Shaw (2000) adapted the Heckman (1974) labor supply model to include information supplied by recreationists about their labor supply status, in particular whether they felt under- or over-employed relative to their desired number of hours. This information is used to identify subgroups in the data for which the shadow value of leisure time is less than the wage or more than the wage, which helps in the estimation of both a wage function and a shadow value of leisure time function. This approach produces individual-specific estimates of the opportunity cost of leisure time, based on their demographics and labor market decisions, which are used in a subsequent recreation demand analysis. …

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