Coastal Services Center

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Recreational Value of Beaches

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Introduction

The benefits from beach nourishment include storm protection benefits, recreational benefits, and option benefits. Storm protection benefits accrue to local property owners. recreational benefits accrue to beach users who visit the beach to enjoy beach activity. Option benefits are a form of insurance; they accrue to potential future beach visitors. That is, although the individual does not use the beach now, he or she may choose to use the beach in the future and therefore derives a benefit from the existence of the beach. In addition, some analysts talk of existence value which is a measure of non use benefit for a resource for some "moral," altruistic, or other reason unrelated to use or option value (Pearce 1994).

This paper is concerned only with recreational benefits that accrue to individuals who actually visit the beach. Economic value reflects individuals' willingness-to-pay for benefits such as beach use. For a given beach, recreational value is measured as the sum of all of the users' willingness to pay. Recreational value is difficult to calculate for three reasons. First, the beach is typically provided to users free of an admission charge; thus, there is no market test or valuation of the recreational willingness to pay. Second, the beaches that do not charge admission do not have actual beach user counts. Third, the actual behavioral reaction of beach users to a receding beach is not known.

Theoretical Background of Recreational Benefits

Figure 1. Total Benefits of a Good.

The economic theory of demand is the basis for understanding the value of recreational benefits. Demand theory distinguishes between the market price that a consumer is required to pay and the value or benefit of the product to the consumer, where value is the maximum amount the consumer would pay rather than do without. The difference between the maximum a consumer would pay and the amount the consumer is actually required to pay is called consumer surplus.

When economists speak of the demand for a good, they are talking about the various quantities of that good that are demanded per time period at different prices, holding everything else constant. Thus, by demand they mean all possible price/quantity combinations, represented graphically by the demand curve. Figure 1 shows a demand curve labeled Beach Visits. In this example at an admission price of $9, the buyer purchases one beach day per season. At $8 per beach visit, the buyer would visit the beach two days per season and spend a total of $16 on beach visits. If the admission price is lowered to $7 per beach visit, the buyer purchases or visits the beach three times per season. If the beach is provided at a zero price, the consumer would visit the beach ten times per season, but the total expenditure is zero. At a zero price the consumer would think of a beach visit as a "free" good. Changes in the price of a beach visit change the quantity of beach visits per season.

Figure 2. Consumer Surplus for a Zero Priced Beach

One interpretation of the demand curve is that the buyer's valuation of a good decreases as the amount of the good increases. The price of a good represents the dollar amount the buyer will pay for the last unit or marginal unit. The buyer values the first visit at $9, the second visit at $8, and the third visit at $7. Ordinarily we think of the entire visit being sold at the same price, say $7. The difference between the consumer's valuation for all the visits ($9 + $8 + $7= $24) and the amount the consumer must pay ($7 each or $21) is called consumer surplus (in this case $3). In essence, consumer surplus is the buyer's benefit for purchasing the good at the market price. Graphically the triangular area under the demand curve and above the market price represents the consumer surplus. This area is shown in green in Figure 1.

A market price represents the value of the marginal unit. Thus, given a market price, we can read the value of the marginal unit directly from the demand curve. If the market or admission price to the beach is zero, then the value of the marginal visit to the consumer is also zero. But the market price does not represent the value of visiting the beach; it only represents the value of the marginal visit to the beach. The shaded area under the demand curve represents the total value of the beach. This is shown in Figure 1 for an admission price of $7 as the shaded area below the demand curve out to quantity equal to three visits. The area shaded in green represents consumer surplus, and the area shaded in gray represents the dollar expenditure to the consumer. Economic value to the consumer equals consumer surplus plus dollar expenditure. For a "free good," such as a beach visit, the consumer expenditure is zero because the market price is zero. But the value to the consumer is not zero. Since the price is zero, the entire area under the demand curve is consumer surplus.

Figure 3. Demand for an Eroding Beach

Each beach visitor has his/her own personal demand curve and consumer surplus dollar value. The total or market demand curve is the sum of all of the consumer demand curves. Thus the total or market recreational benefit is the sum of all the individual consumer's consumer surpluses. As shown in Figure 2, if Beach Visit Demand is the market demand curve for beach visitation, the shaded area of triangle OAB represents consumer surplus or the total benefit derived by all the beach users. Any factor, such as an increase in the number of beach visitors, that shifts the market demand curve rightward will increase total consumer surplus. Any factor, such as a decrease in the number of beach visitors, that decreases the market demand curve will decrease total consumer surplus. For example, beach erosion degrades the beach by decreasing recreational area between the dune-construction line and the shoreline and raising congestion costs. This lowers the market demand for beach visitation, illustrated in Figure 3 as a decrease or shift in market demand from Demand 1 to Demand 2. If the beach were allowed to erode, total benefits would be area OA'B'. If the beach is not allowed to erode, the net recreational benefits attributable to nourishing the beach are graphically illustrated as the trapezoid, AA'B'B.

Estimation of the consumer surplus gained by restoring an eroded beach requires an estimate of the market consumer surplus, which is based on an estimate of the number of beach visitors and an estimate of the erosion rate and how the demand curve shifts as a result of the erosion.

Estimating Consumer Surplus for Non-market Goods

Ideally, the demand curves required to measure consumer surplus would be derived from observable market prices. However, beach use is typically distributed at a zero admission price. This makes the beach a non-market good, the general term for goods not sold in a market. For non-market goods, data do not exist to use standard statistical demand estimation procedures. Since there are no observable prices directly linked to usage, an alternate estimating procedure is required. The most frequently cited alternate methods are the travel cost method and the contingent valuation method.

Travel cost method (Clawson Method) was developed in the 1950s and uses travel costs to construct a demand curve. The basic idea is that travel is a complement to visiting the beach. The method uses a trip generating function to provide a model of recreational use. The function is an equation that relates the number of trips to the beach to the costs of travel, including time and on-site costs, gas, and parking, as well as other socioeconomic variables. The estimated trip generating function relates frequency of beach visits to transportation cost and other independent variables. These results can be used to infer the demand for recreational use where travel cost is a proxy for admission price. The consumer surplus, or value to the consumer, is estimated from the resulting demand curve.

The data requirements for application of this method are extensive and there are a number of potential statistical and conceptual difficulties. Specification of the functional form of the trip generating function relating visit frequency to travel costs and the socioeconomic variables is crucial to the benefit estimates obtained. There are conceptual difficulties also. The method works best for attractions that require consumers to travel to the recreation site. The basic premise of the travel cost method is that the costs incurred by consumers in traveling to the beach can be used as surrogate prices. However, if consumers have chosen to live close to the beach, then the basic assumption is violated. This violation occurs for beaches with significant nearby residential populations. Travel cost may greatly underestimate the recreational value of the beach if travel cost consists of walking out your back door or across the street. For these beaches the estimated value of the beach will be less than the true value, hence recreation value will be underestimated. A similar difficulty arises in cases where the beach is not the only objective of the trip, for instance where multi-purpose trips are made (Pearce 1994). This problem occurs when visitors to a Florida beach also go to Busch Gardens, Disney World, or Sea World. In these cases the assignment of travel cost to beach use versus attraction visitation is difficult and usually arbitrary.

The Contingent Valuation Method tries to measure exactly what is wanted-- how much is a beach visit worth? The information is obtained by surveys of beach visitors, and potential beach visitors. The survey asks them to place a value or willingness to pay amount on a "beach day." Visitors to the beach also are asked a series of questions regarding why and how often they visit. Other data, such as expenditure pattern, number in their party, and the activities used on the beach also may be collected.

There are three basic parts to most contingent valuation survey instruments. First, a hypothetical description of the beach nourishment project is presented to the respondent. This includes information on the beach erosion rate, the size of the project, if and how the respondent may be expected to pay for it, what institutions will be responsible for the project, and so forth. Second, the respondent is asked questions to determine how much he would value the beach if confronted with the opportunity to obtain it under the specified terms and conditions. These questions take the form of asking how much a consumer is willing to pay for a day at the beach. Third, questions on socioeconomic and demographic characteristics of the respondent are asked in order to relate the answers respondents give to the valuation questions to the other characteristics of the respondent. Contingent valuation avoids many of the problems in valuing zero priced goods by directly asking consumers what they would be willing to pay for the good in different contexts. The key is a well-designed questionnaire.

Criticisms of contingent valuation focus on the issue of whether people give accurate responses to the questions. If respondents were able to clearly understand the changes in the beach environment, and answered truthfully, this method would be ideal. However, the central problem with the approach is whether the intentions people indicate before the change will accurately describe their behavior after the change. This is known as strategic bias and depends on the respondent's perceived payment obligation and his/her expectation about beach improvement. If the respondent expects to actually have to pay his/her reported willingness to pay values, then there is the temptation to understate the true value. If the price to be charged is not expected to be related to the response, but improvement to the beach is expected to be related to the response, then willingness to pay may be overstated. A related concern regards the hypothetical nature of the question; the answers to hypothetical questions may not be good guides to actual behavior. Then, too, there are the typical survey statistical problems. All surveys are subject to interviewer and survey bias. That is, the way interviewers conduct themselves and the interview can influence responses. The way questions are phrased and the responses allowed can also influence survey results. All surveys are subject to systematic survey error. Systematic survey error occurs when the respondents are not randomly chosen from the target population. And finally, the sample size must be large enough so that statistical results will have reasonable confidence intervals.

Attendance and Behavioral Assumptions

Whether the recreational benefit is estimated using the travel cost method or the contingent valuation method, the data collected represents a sample of the population. The average estimated recreational benefit must be multiplied by the number of beach users to yield total recreational value. These methods require information on beach attendance. In most places where there is no charge for beach use, there is no count of beach users. Therefore, beach attendance must be estimated from parking fees, lifeguard or ranger estimates, or by sampling beach usage periodically.

As the beach erodes, an assumption must be made as to how beach users will react to narrower beaches. It is possible that they will ignore the beach loss, not change their behavior and continue to visit the same beach. In this case there will be no decrease in demand. However, the assumption is not tenable; as the beach gets narrower and narrower and eventually disappears, beach visitors will have to find alternatives. The behavioral assumption determines how rapidly the visitations decline and how fast recreational benefit is reduced as the beach erodes. One assumption is that as the beach gets narrower each individual's benefit remains constant, but fewer people visit because the carrying capacity of the beach is reduced. It is the reduction in the number of people that causes the reduction in recreational benefits. It may be that beach visitors abandon the beach at the same rate that it erodes, thus keeping pre- and post-erosion beach use densities the same (Faucett 1998). It is possible that, for example, the same number of users visit the beach, but each user finds the value of a beach day is reduced as the beach becomes more congested.

Summary

The recreational value of a beach nourishment project equals society's willingness to pay for the increased quality and quantity of beach activities brought about by the project as opposed to the status quo. Estimating the increased or marginal benefits from the nourishment project requires an estimate of the current economic value attributable to the beach, as well as an estimate of how this value will change if the beach is not nourished. Both the travel cost method and the contingent valuation method are acceptable in so far as estimating recreation value. Neither is perfect. Both suffer statistical and conceptual difficulties. However, properly applied, these methods allow us to estimate a beach's recreational value.

References

Bell, F. W., and V. R. Leeworthy. 1990. "Recreational Demand by Tourists for Saltwater Beach Days." Journal of Environmental Economics and Management. Volume 18. Pages 189 to 205.

Brown, G. and K. Pollakowski. 1977. "Economic Valuation of Shoreline." Review of Economics and Statistics. Volume 59, Number 3. Pages 272 to 278.

Curtis, T.D. and E.W. Shows. 1984. A Comparative Study of Social Economic Benefits of Artificial Beach Nourishment-Civil Works in Northeast Florida. Report for the Florida Division of Beaches and Shores by the University of South Florida.

Edwards, S. F., and F. J. Gable. 1991. "Estimating the Value of Beach Recreation Form Property Values: An Exploration with Comparisons to Nourishment Costs." Ocean and Shoreline Management. Volume 15. Pages 37 to 55.

Jack Faucett Associates. 1998. The Economic Effects of a Five Year Nourishment Program for the Ocean Beaches of Delaware. Prepared for Shoreline Management Branch, Division of Soil and Water Conservation, Department of Natural Resources and Environmental Conservation.

Karasin, L. 1998. The Travel Cost Method: Background, Summary, Explanation and Discussion. Centre for Economic and Social Studies on the Environment, Université Libre de Bruxelles.

McConnell, K. E. 1987. "Congestion and Willingness to Pay: A Study of Beach Use." Land Economics. Volume 53. Pages 185 to 195.

Pearce, D., D. Whittington, S. Georgiou, and D. Moran. 1994. Economic Values And The Environment In The Developing World: A Report To The United Nations Environment Programme, Nairobi. Environmental Economics Series Paper No. 14. United Nations Environment Programme Environment And Economics Unit. Retrieved from http://www.unep.org/unep/products/eeu/ecoserie/ecos14/ecos14.htm

Silberman, J. and M. Klock. 1988. "The recreational benefits of Beach Nourishment: An Empirical Analysis." Oceans and Shoreline Management. Volume 2. Pages73 to 90.