Valuation of an Asset and the Travel Cost Method

Submitted by Mikky
 
Today, while delivering an in-house lecture to my classmates, I came to think about a process of statistical evaluation that has cleared a lot of my doubt about evaluating the cost of environmental assets.

         Some of us might have given a thought about the factors that would determine the valuation of an environmental asset like a park, lake or cultural assets like ‘Christ the Redeemer‘ or the ‘Taj Mahal’. According to some, the entry fee/access fee for that asset determines the value for the asset,but if properly considered, the entry fee is a reflection for the demand for that asset, not the value of that asset. So economists and statisticians use a set of methods to evaluate such assets. Travel cost method, Contingent valuation etc… but let us inform ourselves about the Travel Cost Method (TCM) as this method is cheaper and viable in usage than the other methods and can be more accurate.  TCM is also an easy method and we can apply it in our daily lives and you can also calculate the value of your own home by using this very method.
 

Here is a brief post on how the asset is evaluated by the Travel Cost Method:

 
Zonal Evaluation of the Environmental Asset
         So here in the above picture, you can see how an environmental asset that we took (a lake)  is evaluated by zoning the area around it. These zones are actually the places of residence, of the visitors to the pond. The visitation to this asset is evidently going to be from the people living in the areas around the place. So its logical to divide the areas based on their average radius from the lake. 
         ABOUT THE ZONES
         The zones are residential areas. They need not necessarily be in the form of circles as above, they can be hamlets spread out or cities or continents lying far away ( if the asset has a very wide visitation). So The zones demonstrate the radii and the distance people have to travel in order to reach the asset: people living in the farther side of Zone A and Zone B have to cover 15 kms and 30 kms respectively and as they have to travel, and suppose the per km cost of travelling is 3 rupees and say that the average wage/ hr in that region is 8 rupees per hour as the time the visitor spends on travelling is the wage/hr loss for him which in turn gives the value of the visit to the environmental asset.
       Zonal Evaluation in Zone A
                   Value of the asset =  {(Travel Time x Average Wage Rate) + (Distance x Vehicle Operations/ Kilometre) + Entry Fee} Average Visitation Rate
                                              =  {( 1 hr x 8 Rs) + (15 kms x 3 rupees) + 20 rupees} 3000 visits from Zone A
                                              = {8 + 45 + 20} 3000 = Rupees 219,000 
      Zonal Evaluation from Zone B
                                          V  = {(2 hrs x 8) + (30 kms x 3 rupees) + 20 rupees} 1000 average visits
                                              = Rupees 126,000
 
     Total Value of Asset (The Lake)  = Zonal Value of A + Zonal Value of B = 219,000 + 126,000 =  Rupees 345,000 
 
                                         Valuation is done based on the demand that the people in the surrounding area have for the particular asset. The costs they incur  is the reflection of the demand the people hold for that asset. As I said above, this can also be applied to analyse the value of anything on this planet, even your home and if the house is worth keeping, etc..Try using this tool this weekend for “importance evaluation“.
 
 
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©The Idea Bucket, 2013 (Article submitted by team-member, Mikky)
 

 

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4 Comments

  1. This is a perfect perspective that I think we can use to explain a lot of things. My first thought would be to the benefits of only eating food that is within a 100 mile radius of where we live! I am sure there could be many more examples…thanks.

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