Taman Negara Travel Cost Problem
You are part of a group project which is making recommendations regarding an increase in the
entrance charge for a national park in Malaysia. The analysis below has been structured to
facilitate your getting an answer for your client. You should prepare a one-page summary memo
to your client outlining and justifying your recommendations, with appendices supporting these
recommendations. You should also submit as backup an electronic copy of the EXCEL file
containing all of your computations plus your names (send to slowe@bren.ucsb.edu using as a
file name your surnames; eg: Costello&Lowe.xls).
Background
Taman Negara (literally, "national park" in Malay) is one of the oldest and largest protected
areas in the tropics. Established in 1938-39 during the British colonial period, it sprawls over
more than 4,000 square kilometers in three states of Peninsular Malaysia: Kelantan, Pahang, and
Terengganu. It is considered one of the finest and best protected conservation areas in the
developing world. Its terrain ranges from lowland rainforests to the highest peak in Peninsular
Malaysia, Gunung Tahan (2,187 meters). It provides habitat for numerous threatened and
endangered species, including the Sumatran rhinoceros, Asian tiger, seladang (wild ox), and
siamang (black gibbon).
Malaysia's rapid economic growth since independence in 1957 has been accompanied by the
creation of a sizable middle class. This has increased domestic demand for recreation, including
demand for nature-based activities at parks like Taman Negara. Camping, hiking, and sightseeing are the principal activities at the park. The park today attracts a roughly equal mix of
Malaysian and foreign visitors.
The pedagogic objectives of the project are to learn how to implement the single-site travel-cost
model and to use this model to analyze recreation policy issues.
In this project you will work with a dataset on domestic visitors to Taman Negara in 1991. The
data are found in a separate excel workbook, Data for Malayan Travel Cost.xls. The workbook
contains data organized by state of origin for Malaysian visitors. Column A gives the names of
the states. Data are combined for two states, Kedah and Perlis. Wilayah Persekutuan refers to the
federal territory, which includes the largest city in the country, Kuala Lumpur.
Column B indicates the number of visitors from each state in 1991. Most visitors came from
urban areas in those states. Column C indicates the one-way distance, by main roads and in
kilometers, from the largest city in each state to the small town of Kuala Tembiling. There is no
road to the park entrance. Visitors typically drive or take a bus or taxi to Kuala Tembiling and
then take a boat upriver to the park entrance at Kuala Tahan. (In case you're wondering, "kuala"
means river mouth in Malay.)
Columns E and F provide additional information on the states. Column E shows total urban
population, while column F shows average monthly income for urban adults. The income data
are in ringgit. In 1991, 1 ringgit (RM) equaled approximately US$0.40.
The Problem
The Department of Wildlife & National Parks is concerned about the societal value of the Park
(per visitor and in total) and is interested in raising the entrance fee from its current level of
RM31.
Your Job
Submit a paper copy of a memo with four appendices (as described below) plus an electronic
version of your EXCEL work. (Total points = 100)
Summary Memo (20 points).
Provide answers to the questions raised in the above problem statement, indicating the effect of
raising the entrance fee by the average consumer surplus per visitor. What is the effect on park
revenue and visitation? Is it a good idea? Write a one-page policy memo summarizing your
recommendations, including justification. Back this memo up with several appendices, as
indicated below.
Appendix 1: Visitation rate. (20 points).
Prepare two scatter plots: one of visitation rate vs. total travel cost per person; a second with
visitation rate vs. monthly income per person. Each point on each plot corresponds to data from
one state. Do the data in the two plots appear to be consistent with consumer theory?
Hints:
a. Calculate the round-trip transport cost per visitor from each state under the following
assumptions:
· visitors travel by automobile
· there are four passengers per vehicle
· average vehicle fuel efficiency is 16 kilometers per liter of petrol (gasoline)
· petrol costs RM 1.04/liter.
· ignore non-fuel automobile costs.
b. In another column, calculate the round-trip travel-time cost per visitor from each state under
the following assumptions:
· average vehicle speed is 60 kilometers per hour
· the average month includes 25 workdays
· the average workday includes 8 hours
· the opportunity cost of an hour of travel time is half the hourly wage rate.
c. In another column, calculate the round-trip monetary travel cost per visitor by adding the park
entrance fee, RM 31 per visitor, to the round-trip transport cost. The entrance fee covers both use
of the park and the boat ride from Kuala Tembiling.
d. In another column, calculate the total travel cost per visitor by adding the round-trip traveltime cost to the round-trip monetary travel cost.
e. In another column, calculate the visitation rate for each state (= visitors / population).
f. Prepare a scatter plot that plots visitation rate against total travel cost.
g. Prepare a scatter plot that plots visitation rate against monthly income.
Appendix 2: Estimating the visitation demand equation (20 Points)
Generate three visitation rate equations, one depending on monetary travel cost and income, one
depending on total travel cost including the opportunity cost of time and income, and one
depending only total travel cost and not income. Report on the best estimate of the visitation rate
equation (equation predicting the visitation rate as a function of travel cost and possibly income).
Discuss, compare and contrast your results, including goodness-of-fit, interpreting the
coefficients, their statistical significance and whether they have the expected sign. Should
monthly income be included as an explanatory variable? Why?
Hints:
a. Copy the data on round-trip monetary travel cost and monthly income to two new columns.
Regress visitation rate on these variables. Include an intercept in the regression (i.e., do not
check the box, "Constant is zero"). Call this Regression #1.
b. Copy the data on round-trip total travel cost (including time) and monthly income to two new
columns. Regress visitation rate on these variables. Include an intercept in the regression. Call
this Regression #2.
c. Prepare a scatter plot that plots monthly income against monetary travel cost. The relationship
shown in the plot helps explain the results for the monthly income variable in Regressions 1 and
2. You can earn 5 bonus points by correctly identifying this explanation. (You won't lose any
points if you get it wrong, so feel free to guess!)
d. Regress visitation rate on just total travel cost (and an intercept). That is, repeat Regression 2,
but exclude monthly income. Call this Regression #3.
e. Why do you consider Regression #3 your “best” regression?
Appendix 3: Calculating consumer surplus (20 points)
Calculate the total consumer surplus in each state, the total consumer surplus over all states, and
the average consumer surplus per visitor (total divided by the total number of visitors). How
does the average consumer surplus compare to the entrance fee?
Hints:
a. In a new column, calculate the fitted values of visitation rate for each state using the
coefficient estimates from Regression #3. You should find that one or more of the values are
negative. Use the Excel "IF" function in column V to set these values equal to zero, while not
changing the positive values.
b. In another column, calculate the predicted number of visitors for each state using the fitted
visitation rates just determined. Calculate the predicted total number of visitors across all states.
How does this prediction compare to the actual total number of visitors?
c. In a new column, calculate the hypothetical total travel cost per visitor that would drive the
visitation rate to zero in each state. This is the "choke price" for recreation demand.
d. In a new column, calculate the aggregate consumer surplus enjoyed by visitors from each
state. Use the fitted, not actual, number of visitors in making this calculation. Calculate the total
consumer surplus across all states, and the average consumer surplus per visitor. Use the fitted,
not actual, number of visitors in making the latter calculation.
Appendix 4: Calculating the impact of an increase in the entrance fee (20 points)
In an effort to generate more revenue for park protection and management, the Department of
Wildlife & National Parks is considering increase the entrance fee by an amount equal to the
average consumer surplus per visitor. What effect does this have on revenue and on the number
of visitors? Would you say that demand for recreation in Malaysia is elastic or inelastic with
respect to the price of recreation?
Hints:
a. In a new column, calculate the total value of entrance fees paid by visitors from each state for
the existing entrance fee (i.e., RM 31 per visitor). Use the fitted, not actual, number of visitors in
making this calculation. Calculate total fee revenue across all states.
b. In a new column, calculate the fitted values of visitation rate for each state using the
coefficient estimates from Regression 3, under the assumption that the entrance fee is increased
by an amount equal to the average consumer surplus per visitor (previously calculated). You
should find that some of the values are negative. Use the Excel "IF" function to set these values
equal to zero, while not changing the positive values.
c. In a new column, calculate the predicted number of visitors from each state, using the
visitation rates (excluding negatives) just computed. Calculate the total number of visitors across
all states.
d. In a new column, calculate the predicted total value of entrance fees paid by visitors from
each state, using the predicted number of visitors just computed. Calculate total fee revenue
across all states.
[Thanks to Prof. Jeff Vincent of UCSD for the problem, and to Prof. Charlie Kolstad of the Bren
School for elaborating]