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Applications of SimulationTravel Costs

Scott MatthewsCourses: 12-706 / 19-702

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Admin Issues

No Friday class this weekMore on HW 4 – removing Q #17.

Grade Range on Next SlideNeed to specify take-home final plans

Week of Dec 8-12, Two timeslots? #1: Morning of 8th – 5pm on 10th

#2: Morning of 10th – 5pm on 12th

HW 4 Grades

All raw scores above 74 -> 50/50All scores below 74, scaled as % of

74 Minimum score: 15/50

Average: 35/50

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@RISK tutorial/simulations

Look how to do overlays (put multiple distributions on one graph).

Incorporating correlations next week.

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Travel Costs

Time is a valuable commodity (time is $) Arguably the most valuable All about opportunity cost

Most major transportation/infrastructure projects built to ‘save travel costs’ Need to tradeoff project costs with benefits Ex: new highway that shortens commutes

Differences between ‘travel’ and ‘waiting’ Waiting time disutility might be orders of magnitude

higher than just ‘travel disutility’ Why? Travelling itself might be fun

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Valuation: Travel Cost Method

Estimate economic use values associated with ecosystems or sites that are used for recreation changes in access costs for a recreational site elimination of an existing recreational site addition of a new recreational site changes in environmental quality

www.ecosystemvaluation.org/travel_costs.htm

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Travel Cost Method

Basic premise - time and travel cost expenses incurred to visit a site represent the “price” of access to the site. 

Thus, peoples’ WTP to visit the site can be estimated based on the number of trips that they make at different travel costs.  This is analogous to estimating peoples’ WTP

for a marketed good based on the quantity demanded at different prices.

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Example Case

A site used mainly for recreational fishing is threatened by development. 

Pollution and other impacts from this development could destroy the fish habitat Resulting in a serious decline in, or total loss of, the

site’s ability to provide recreational fishing services. 

Resource agency staff want to determine the value of programs or actions to protect fish habitat at the site.

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Why Use Travel Cost?

Site is primarily valuable to people as a recreational site.  There are no endangered species or other highly unique qualities that would make non-use values for the site significant.

The expenditures for projects to protect the site are relatively low.  Thus, using a relatively inexpensive method like travel cost makes the most sense.

Relatively simple compared to other methods

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Options for Method

A simple zonal travel cost approach, using mostly secondary data, with some simple data collected from visitors.

An individual travel cost approach, using a more detailed survey of visitors.

A random utility approach using survey and other data, and more complicated statistical techniques.

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Zonal Method

Simplest approach, estimates a value for recreational services of the site as a whole.  Cannot easily be used to value a change in quality of recreation for a site

Collect info. on number of visits to site from different distances.  Calculate number of visits “purchased” at different “prices.” 

Used to construct demand function  for site, estimate consumer surplus for recreational services of the site.

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Zonal Method Steps

1. define set of zones around site.  May be defined by concentric circles around the site, or by geographic divisions, such as metropolitan areas or counties surrounding the site

2. collect info. on number of visitors from each zone, and the number of visits made in the last year. 

3. calculate the visitation rates per 1000 population in each zone.  This is simply the total visits per year from the zone, divided by the zone’s population in thousands. 

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Sample Data

 Zone Total

Visits/YearZone

PopulationVisits/1000

0 400 1000 4001 400 2000 2002 400 4000 1003 400 8000 50

Beyond 3 0Total Visits 1600

   

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Estimating Costs

4. calculate average round-trip travel distance and travel time to site for each zone.  Assume Zone 0 has zero travel distance and time.  Use average cost per mile and per hour of travel time, to calculate

travel cost per trip.  Standard cost per mile is $0.30.  The cost of time is from average

hourly wage.  Assume that it is $9/hour, or $.15/minute, for all zones, although in

practice it is likely to differ by zone. 

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Data

Zone RoundTrip Dist .

Rou ndTrip Time

Dist ancetime s

Cost /Mile($.30)

Trave lTimetime s

Cost /Minute($.15)

TotalTrave lCost /Trip

0 0 0 0 0 01 20 30 $6 $4.50 $10.502 40 60 $12 $9.00 $21.003 80 120 $24 $18.00 $42.00

5. Use regression to find relationship between visits and travel costs,e.g. Visits/1000 = 330 – 7.755*(Travel Cost)

“a proxy for demand given the information we have”

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Final steps 6. construct estimated demand for visits with regression. First point on demand

curve is total visitors to site at current costs (with no entry fee), which is 1600 visits.  Other points by estimating number of visitors with different hypothetical entrance fees (assuming that an entrance fee is valued same as travel costs). 

Start with $10 entrance fee.  Plugging this into the estimated regression equation, V = 330 – 7.755C:

Zone Travel Costplus $10

Visits/1000 Population Total Visits

0 $10 252 1000 2521 $20.50 171 2000 3422 $31.00 90 4000 3603 $52.00 0 8000 0

Total Visits 954

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Demand curve

This gives the second point on the demand curve—954 visits at an entry fee of $10.  In the same way, the number of visits for increasing entry fees can be calculated:

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

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Graph

Consumer surplus = area under demand curve = benefits from recreational uses of site around $23,000 per year, or around $14.38 per visit ($23,000/1,600). 

Agency’s objective was to decide feasibility to spend money to protect this site.  If actions cost less than $23,000 per year, the cost will be less than the benefits provided by the site.

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Recreation Benefits

Value of recreation studies‘Values per trip’ -> ‘value per activity day’Activity day results (Sorg and Loomis 84)

Sport fishing: $25-$100, hunting $20-$130 Camping $5-$25, Skiing $25, Boating $6-$40 Wilderness recreation $13-$75

Are there issues behind these results?

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Value of travel time savings

Many studies seek to estimate VTTS Can then be used easily in CBAs

Waters, 1993 (56 studies) Many different methods used in studies Route, speed, mode, location choices Results as % of hourly wages not a $ amount Mean value of 48% of wage rate (median 40) North America: 59%/42%

Good resource for studies like this: www.vtpi.org

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Government Analyses

DOT (1997): Use % of wage rates for local/intercity and personal/business travel These are the values we will use in class

Office of Secretary of Transportation, “Guidance for the Valuation ofTravel Time in Economic Analysis”, US DOT, April 1997.

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In-and-out of vehicle time

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Income and VTTS

Income levels are important themselves VTTS not purely proportional to income Waters suggests ‘square root’ relation E.g. if income increases factor 4, VTTS

by 2

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Introduction - Congestion

Congestion (i.e. highway traffic) has impacts on movement of people & goods Leads to increased travel time and fuel costs Long commutes -> stress -> quality of life Impacts freight costs (higher labor costs) and

thus increases costs of goods & services http://mobility.tamu.edu/

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Literature Review Texas Transportation Institute’s 2005 Annual

Mobility Report http://tti.tamu.edu/documents/mobility_report_2005.pdf 20-year study to assess costs of congestion Average daily traffic volumes Binary congestion values

‘Congested’ roads assumed both ways Assumed 5% trucks all times/all roads Assumed 1.25 persons/vehicle, $12/hour Assumed roadway sizes for 3 classes of roads Four different peak hour speeds (both ways)

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Results

An admirable study at the national level

In 2003, congestion cost U.S. 3.7 billion hours of delay, 2.3 billion gallons of wasted fuel, thus $63 billion of total cost

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Long-term effects (Tufte?)

Uncongested33%

Severe20%

Heavy14%

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Old / Previous Results

Method changed over time..In 1997, congestion cost U.S. 4.3

billion hours of delay, 6.6 billion gallons of wasted fuel, thus $72 billion of total cost

New Jersey wanted to validate results with its own data

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New Jersey Method

Used New Jersey Congestion Management System (NJCMS) - 21 counties total

Hourly data! Much more info. than TTI report For 4,000 two-direction links

Freeways principal arteries, other arteries Detailed data on truck volumes Average vehicle occupancy data per county,

per roadway type Detailed data on individual road sizes, etc.

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Level of Service

Description of traffic flow (A-F) A is best, F is worst (A-C ‘ok’, D-F not)

Peak hour travel speeds calculated Compared to ‘free flow’ speeds A-C classes not considered as congested D-F congestion estimated by free-peak speed

All attempts to make specific findings on New Jersey compared to national

http://www.njit.edu/Home/congestion/

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Definitions

Roadway Congestion Index - cars per road space, measures vehicle density Found per urban area (compared to avgs) > 1.0 undesirable

Travel Rate Index Amount of extra time needed on a road

peak vs. off-peak (e.g. 1.20 = 20% more)

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Definitions (cont.)

Travel Delay - time difference between actual time and ‘zero volume’ travel time

Congestion Cost - delay and fuel costs Fuel assumed at $1.28 per gallon VTTS - used wage by county (100%) Also, truck delays $2.65/mile (same as TTI)

Congestion cost per licensed driver Took results divided by licenses Assumed 69.2% of all residents each county

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Details

County wages $10.83-$23.20 per hour

Found RCI for each roadway link in NJ Aggregated by class for each county

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RCI result:

Northern counties generally higherthan southerncounties

New YorkCity

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TRI result:

Northern counties generally higherthan southerncounties

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Avg annualDelay = 34 hours!

Almost a workWeek!

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Effects

Could find annual hours of delay per driver by aggregating roadway delays Then dividing by number of drivers

Total annual congestion cost $4.9 B Over 5% of total of TTI study 75% for autos (190 M hours, $0.5 B fuel

cost) 25% for trucks (inc. labor/operating cost) Avg annual delay per driver = 34 hours

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Future

Predicted to only get worse Congestion costs will double by 2015 Why? We spend money on construction

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Utility

Recall: eliciting and using individual utility functions to make decisions

Is there a similar concept to help us make decisions at the social level?

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Specifics on Saving Lives

Cost-Utility Analysis Quantity and quality of lives important

Just like discounting, lives are not equal Back to the developing/developed example

But also: YEARS are not equal Young lives “more important” than old Cutting short a year of life for us vs Cutting short a year of life for 85-year-old Often look at ‘life years’ rather than ‘lives’

saved.. These values also get discounted

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Measuring Lives Saved

Life years (prevented fatalities) not equal Qualitative and quantitative issue Need to consider tradeoffs

Simple example Status quo: no newborns survive a condition Alt. A: 5 live, but with permanent disability Alt. B: 2 live, but with low levels of disability

Which option (SQ, A, B) is preferable?Assume Y increasing, H increasing

Equal costs, no relevant uncertainty

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Simple Example

Measure of TotalAdditional Years

HealthStatus

Y1 Y2 Y3

H1 Y1H1SQ Y2H1 Y3H1

H2 Y1H2 Y2H2 Y3H2B

H3 Y1H3 Y2H3A Y3H3

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The Quality/Quantity Game

Assume “preference” for Increased number of years lived Increased level of health Would your preferences be the same?

If so, SQ “dominated” by both A and B Note different horizontal/vertical preference But which of A or B is better? We all understand difference in years Need an index of health status

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Health Status Index

Death

0

SeverelyDisabled

MinimallyDisabled

HealthModeratelyDisabled

0.15 0.47 0.92 1

Measures utility, derived from expertsBut this says nothing about tradeoff!

Can perform tradeoff survey Value of “shorter Y, higher H” vs. opposite

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Methods

Health Rating method (see above)Time tradeoff methodStandard gamble methodDiscounting life years

Can/should we discount them? Unlike cash values, we can’t make a

decision to trade 1 year today for 10 yrs from now

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Cost-Effectiveness TestingGenerally, use when:

Considering externality effects or damagesCould be environmental, safety, etc.

Benefits able to be reduced to one dimension Alternatives give same result - e.g. ‘reduced x’ Benefit-Cost Analysis otherwise

difficult/impossible

Instead of finding NB, find “cheapest” Want greatest bang for the buck

Find cost “per unit benefit” (e.g. lives saved) Allows us to NOT include ‘social costs’

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Why CEA instead of CBA?

Similar to comments on MCDM Constraints may limit ability to performMonetizing maybe difficult or

controversial Easy to find lives saved, hard to judge

valueMonetizing can’t capture total social value or

distorts its value

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The CEA ratiosCE = C/E

Equals cost “per unit of effectiveness” e.g. $ per lives saved, tons CO2 reduced Want to minimize CE (cheapest is best)

EC = E/C Effectiveness per unit cost e.g. Lives saved per dollar Want to maximize EC

No practical difference between 2 ratios

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An Obvious Example

AlternativesValuesA B C

Cost $10 M $10 M $10 M# LivesSaved

5 10 15

CEratio

$2 M $1 M $0.67M

ECratio

0.5life

1 life 1.5lives

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Another Obvious One

AlternativesValuesA B C

Cost $5 M $10 M $15 M# Lives Saved 10 10 10CE ratio($M/life)

$0.5 $1 $1.5

EC ratio(life/$M)

2 1 0.66

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Comments on Obvious Examples

Each had 2 dominated alternativesCould easily identify best CE/EC

optionAlso had fixed scale

Fixed cost scale in first Fixed effectiveness in second

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Interesting Example

AlternativesA B

Cost $1 M $100 M# LivesSaved

4 200

CE ratio $250k $500kEC ratio 4 lives 2 lives

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Lessons Learned

Ratios still tend to hide results Do not take into account scale issues CBA might have shown Option B to be better (more lives

saved) Tend to only consider budgetary costs CEA used with constraints? Minimize C s.t. E > E*

Min. effectiveness level (prev slide) Find least costly way to achieve it

Minimize CE s.t. E > E* Generally -> higher levels of C and E!

Can have similar rules to constrain cost