How Valuable are Lakes in the Red Cedar Basin? Modeling Recreational Demand Using Travel Cost Method
University of Wisconsin--Stout
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There are strong negative attitudes surrounding the lakes in the Red Cedar Basin. “The lakes are awful during hot days”, “It’s dangerous to touch the green water”, and the often mentioned “The algae smell is going to plague the entire town soon”. From gauging this public sentiment, one would expect the algal blooms to discourage people from spending time at the lakes. On the contrary, my research team noticed that many people still visit the lakes for recreational activities even when the water turns neon green in early July. Perplexed by this anomaly, we found ourselves asking: do people value lakes even when they have poor water quality and if so, by how much? Our project relied on the travel cost method to quantify the recreational value of lakes in the Red Cedar Basin. For most goods like a loaf of bread, you go to the store and pay a certain dollar amount for it; that amount reflects how much you value that loaf of bread. However, lakes are not items like bread that are bought and sold in markets, so there is no price which can tell us how much they are worth. This is when the travel cost method comes in handy because it enables economists to calculate the dollar value of nonmarket goods. The idea is that travel expenses people incur to visit a lake, e.g. gas, represent how much they value using the lake. Throughout July we surveyed people with recreational watercraft (e.g., pontoon, fishing boat, jet ski) at boat launches at Lake Menomin, Lake Chetek, Tainter Lake, and Rice Lake. We asked recreators how many miles they traveled to arrive at the boat launch and the number of times they have visited the lake in the past year. To obtain travel costs, we multiplied the number of miles traveled by the IRS reimbursement rate of 54.5 cents per mile. From the annual visit rates and travel costs, we then modeled a demand curve using negative binomial regression and calculated that each person values one trip to the lake at $230.23. This number is surprisingly close to the value of one trip to Lake McKenzie, a pristine water body located in Australia, which Fleming et al. found to be $243. So what is the total recreational value of the four lakes? If we assume all 8,496 boaters in our watershed visit the lakes at least once a year, then they are worth at least ($230.23 x 8,496) $2 million every year. If we assume 5 trips per year instead of 1, the estimate increases to $10 million. Again, these numbers concern only recreation. It does not embody the overall economic value of the lakes because we do not account for factors such as recreators’ impact on local businesses and housing prices. Despite disregarding these components, we find that the lakes are still inherently worth a lot of money. Our research demonstrates that lakes in the Red Cedar Basin are valuable resources for recreation even though they suffer from severe algal blooms. But how could the lakes be nearly as valuable as a clean lake in Australia? From talking to visitors on survey days, I was able to identify some possible answers to this question. When asked about thoughts on the current water quality, most people responded that they are unhappy about the algae scum but do not mind still boating or fishing if they do not touch the water. Others have accepted algal blooms as the norm at this point and have conditioned themselves to be fine with their presence. Although we found that the lakes are worth a lot of money even when they are dirty, I believe that this finding gives us more of a reason to clean up our lakes. Imagine how much more valuable the lakes would be if the waters were clear instead of green. Imagine the tremendous benefit for local economies, for lakefront property owners, and for people who are currently discouraged from using the lakes because of poor water quality. We need to better manage our lakes, but we should do so with a positive outlook that they are valuable water resources rather than undesirable problems.
Economics & Mathematics at Occidental College