S3H Working Paper Series

Number 07: 2017

Valuing Non-Marketed Benefits of Khanpur Dam

By Using Travel Cost Method

Gul Habiba

Faisal Jamil

December 2017

School of Social Sciences and Humanities (S3H)

National University of Sciences and Technology (NUST) Sector H-12, Islamabad, Pakistan

S3H Working Paper Series

Faculty Editorial Committee

Dr. Zafar Mahmood (Head)

Dr. Najma Sadiq

Dr. Sehar Un Nisa Hassan

Dr. Samina Naveed

Ms. Nazia Malik

S3H Working Paper Series Number 07: 2017

Valuing Non-Marketed Benefits of Khanpur Dam

By Using Travel Cost Method

Gul Habiba

Graduate, School of Social Sciences and Humanities, NUST Email: habibanaeem333@yahoo.com

Faisal Jamil Assistant Professor, School of Social Sciences and Humanities, NUST

Email: faisal.jamil@s3h.nust.edu.pk

December 2017

School of Social Sciences and Humanities (S3H)

National University of Sciences and Technology (NUST) Sector H-12, Islamabad, Pakistan

iii

Contents Abstract ............................................................................................................................................................................... v

1. Introduction.............................................................................................................................................. 1

2. Survey of Literature .............................................................................................................................................. 2

3. The Recreational Site: Khanpur Lake ............................................................................................................. 4

4. Methodology .......................................................................................................................................................... 5

5. Questionnaire design ........................................................................................................................................... 9

6. Results and Discussions .................................................................................................................................... 10

6.1 Descriptive statistics ........................................................................................................................................... 10

6.2 Empirical Results .............................................................................................................................................. 14

6.3 Calculation of Consumer Surplus ..................................................................................................................... 16

6.4 Calculation of Recreational use value:………………………………………………………….16

7. Conclusion ............................................................................................................................................................ 17

References ........................................................................................................................................................................ 18

List of Figures

Figure 1: Gender, age, marital status, educational level, employment status, monthly income……….11

Figure 2: Type of resident, province, group visit, Khanpur main purpose of visit, other visits……….12

Figure 3: Most Valued Attributes, Improvements Desired…………………………………………13

Figure 4: Site quality, reasons of poor quality, mode of payment for improving site quality, willing to

pay entry fee, justifiable entry fee……………………………………………………….....................13

List of Tables

Table 1: Variables and Definitions…………………………………………………………………8

Table 2: Zero-truncated Poisson regression results of the model………………………………….16

Table 3: Recreational use Value (weekdays, weekends)……………………………………………17

v

Abstract

The study applies Travel cost method to find out non-marketed recreational benefits of

Khanpur Lake, a well-known tourist spot located in the premise of historical city of Taxila. Data with

a sample size of 150 are gathered and a Zero-truncated Poisson model is estimated using STATA 12.0.

The results show that travel cost significantly affect the rate of visitation, such that increasing cost

decreases visits to the site. The consumer surplus is estimated using the estimated model, which turns

out to be Rs.3333 per trip per visitor resulting in recreational use value of Khanpur Lake to be Rs.121.2

million. Majority of the visitors are willing to pay entry fee equivalent to Rs.50 for development and

improvement of the facilities on the site. This amount can essentially be used for development of the

site thus, increasing both its demand and consumer surplus substantially. This points out toward an

important policy implication that with few more developments, the rate of visitation can be increased

manifolds and Khanpur Lake can get the status of nationally recognized site. This will not only help

in the economic uplifts of locals but will also impart a softer image of KPK in the broader arena, as

this whole region is a hub of international tourists.

Key Words: Travel Cost Model, Zero-truncated Poisson model, Consumer surplus

1

1. Introduction

Nature-based recreation along with tourism is considered an integral part of any country

because on one hand it is a source of preservation of its natural resources and ecosystem while on the

other it is a mean of providing enormous economic benefits both to local communities as well as

national economies, (Gossling, 1999; Wunder, 2000; Wood, 2002). Unfortunately these natural

resources has a characteristic that access to them is either free or partially priced which results in

making them either undervalued or not valued at all, when in fact they carry large economic values.

The absence of this value results in their exploitation as there is no proper price mechanism which

can provide a fair reflection of their true worth. Therefore, the concept of non-market valuation suits

best in this scenario as it will assist in assigning a suitable value to these resources.

Under the head of non-market valuation technique following methods are included, (1) travel

cost methods; (2) contingent valuation methods; and (3) hedonic pricing approaches. Travel Cost

Method (ITCM) or Clawson method is a unique method that value goods and services based upon

their access value. The basic idea behind access value is that it represents the travel cost expenses and

time cost which individuals are willing to face to reach a certain site. Therefore, the number of trips

at different cost for different individuals represents the value of that site.

According to Vicente et al. (2010), this method of economic valuation is preferable over

conventional one because it relies on individuals’ actual behavior while Blackwell (2007) states that

due to advancement in information technology in last two decades and the added benefit of gathering

data about individual socio-economic background like age, education, and income etc. helps in better

explanation of his preferences as opposed to other methods. TCM can be used for variety of purposes

like knowing the impact of eliminating any existing recreational site, addition of some new sites and

also the effect on any change in the environmental quality of the site. There are many studies

concerning the valuation of recreational sites using TCM (such as Stevens and Allen (1980); Dwyer et

al. (1989); Herath and Kennedy (2004); Knapman and Stanley (1991); Rolfe and Gregg (2012)).

Studies on environmental economics in general and valuation of resource in specific are quite

scarce in Pakistan. Few recent studies used nonmarket valuation methods to assess the benefits of

some resources and found value of resource in operation (see for example, Khan, 2006; and Adil and

Delhavi, 2011). In this study TCM is used to measure the factors that motivates visitation to Khanpur

Lake along with consumer surplus. The results suggest that increase in cost to reach the site lead to

decrease visitations, quality of site has no impact on no. of visits, while a person who is more

2

experienced in the activities available on site, tends to visit more than the inexperienced one. Age also

has a significant impact on visitation, young people has a higher visitation rate. Whereas with increase

in distance from the site, visits were reduced. People of Punjab were more frequent visitors. Economic

inactivity induced more visits. Consumer surplus was calculated using travel cost coefficient, it turned

out to be Rs.3333 while annual recreational use value of Khanpur Lake was Rs.121.1 million.

Rest of the paper is divided as follows. Section 2 reviews the relevant literature on use of non-

market valuation techniques. An overview of Khanpur Lake is presented in Section 3. Section 4

discusses the applied methodology and data used. Section 5 is based on the outcomes of the study.

Section 6 concludes the study.

2. Survey of Literature

In a well-functioning market, prices serves as a good measure for indicating each extra unit of

commodity consumed, but in case of environmental goods and services, ordinary market pricing

mechanism fails to work. Calculating non-marketed value of environmental goods and natural

amenities is a key area of interest for many environmental economists around the world. This makes

it important to study in depth the non-market valuation techniques, and chose the most suitable one

for our model construction.

Non-market valuation techniques falls in two broad categories i.e. revealed preference methods

and stated preference methods. As the name suggests Revealed preference method is based on the

observed behavior of individuals consuming certain non-market goods or services, the information

incurred is then used to find out the market value of that commodity. Emphasizing upon the

importance of this method Boardman et al. (2006) stated that valuation based on observed behavior

is pertinent in a sense that the preferences of individuals are revealed without having to ask them. This

results in minimizing any bias that could be associated with such type of studies. Common revealed

preference approach that are used for market-valuation consist of travel cost, hedonic pricing and

market pricing methods.

On the other hand stated preference method make use of surveys to gather information from

individuals related to cost and benefits. This method is employed to find the value of those goods

having either poor or no market proxy at all. Questionnaires are used to collect information but the

respondents do not undergo the real experience nor are they are required to pay for valuation of good

or service, Boardman et al. (2006). For explaining this concept in a better way, Shaw and Roger (2005)

added that in this method ‘individuals are directly asked to state their value for amenities like visit to

3

a beach, lake, environmental change in any of the following or existence of some event there’. Stated

preference technique include the method of contingent valuation, stated choice modeling and conjoint

analysis techniques.

The first variant of TCM applied was Zonal Travel Cost Method. The pioneer of this idea was

Hotelling (1949) who proposed an idea on measuring the value of US National Park Service in 1947.

The method he proposed was to draw a connection between the frequencies of visits to the park from

each zone with average cost faced, depending upon the distance from the zone to the park. The data

collected can be further used to find the consumer surplus. This idea presented by Hotelling was later

applied rigorously by different economists (see for example Clawson 1959; and Clawson and Knetsch

1969; Hanley 1989; Chen et al. 2004 and Becker et al. 2005). Those in favor of ZTCM explains the

reason that it is a less tedious method in regards to data gathering, frequency of visitation from

different zones having diverse population can be adjusted and typically visitors that belong to zones

far from site are few ,ensuring inverse price-quantity relationship (see Ward and Loomis, 1986).

However, besides these advantages, it is seriously criticized because of its vagueness and considered

an undesirable method of economic valuation (see, Bell and Leeworthy, 1990).

Due to these shortcoming in ZTCM, most researchers have preferred individual travel cost

method (ITCM). The choice of method is of due importance because it helps in giving a theoretical

backing for the model that is to be used in a given the given scenario. ITCM is useful because it implies

conventional economic method and depends upon the actual behavior of people rather than what

they state, as used in contingent valuation technique (see for example, Walpole et al. 2001; Sanchez

2008; Alvarez and Larkin 2008; Morgan and Huth 2011). Blackwell (2007) explains further that ITCM

has gained popularity in last few decades because of advancement in information technology with

added benefit of being able to use socio-economic traits of individuals such as age, gender, income,

educational background and place of living etc. which were absent in zonal visitation. Majority of

valuation studies has implemented this method to find out recreational non-marketed value of

different sites, factor that motivates visitation along with consumer surplus of (see for example, Abala

1987; Willis and Garood 1990; Sarker and Surry 1998; Sohngen et al. 1999; Zawacki et al. 2000;

Shrestha et al. 2007; Mendes 2003; Khan 2006 and Adil and Delhavi 2011). There was a common

finding in all these studies that travel cost to reach the site had a significant impact on rate of visitation

i.e. they decreased. As far the impact of socio-economic characteristics on visits, each study had

different findings and same was case of consumer surplus.

4

In a nutshell, to value the non-marketed amenities, individual travel cost model is a best suitable

choice. Based on the findings of this literature, several variables like travel cost, socio-demographics,

and quality of site along with willingness to pay of entry fee will be employed to determine the demand

of this site and consumer surplus.

3. The Recreational Site: Khanpur Lake

Khanpur Lake is located on the province line of Punjab and Khyber Pakhtunkhwa (KPK) and

at distance of 48Km from federal capital Islamabad, in district Haripur on the Haro River originating

from Abbottabad. It’s a serene Lake, with its azure water and glorious vastness, surrounded by lush

green mountains. A dam was constructed in 1983 using this lake as a reservoir and named after the

village of Khanpur (Ejaz et al., 2012). A detailed table about this dam is given in the appendix. This

lake is a suitable habitat for diverse flora and fauna. It also serves as a sanctuary for migratory birds of

Siberia. Although this region is predominantly a rural area but has a diversity of both developed and

undeveloped natural settings and is rich in natural amenities.

With the construction of Khanpur Dam, the arid lands in the vicinity has transformed into fertile

area, increasing the yield of major crops like wheat, maize, potatoes due to enhancement in irrigation

facilities. Not only this, farmers have started growing 110-120 plants of famous and rare red blood

oranges per acre and earning a handsome amount of revenue, i.e., US$3000-6000/acre/year. The

quality of crops has been improved to the extent that they are competing in foreign market as well.

This is one side of picture, the dam has benefitted the local community in a unique way when the

Tourism Corporation Khyber Pakhtunkhwa took a step in flourishing the recreational aspect of this

area. They pioneered airborne and water sport gala in 2010 which attracted both local and foreign

tourists DAWN (2003). After this event some recreational spots were created on the offshore of this

lake providing variety of activities for children and families like boating, jet skiing, cliff diving, rides

and variety of food.

The real problem arise due to the absence of market value of this place because of which facilities

are not delivered properly like strict safety measures while swimming and boating, cleanliness and

maintenance of site, family section, etc. The negligence of people has also badly deteriorated the

environmental quality of this place both of land and water. Through adoption of travel cost method,

this study is an in-depth analysis of the factors that motivates visitors to avail recreational service at

Khanpur Lake. Their willingness to pay for the improvement of environmental quality is also deduced

through this method.

5

4. Methodology

The theory on which TCM and its application is based is quite straight forward. It originates from

the microeconomic theory of consumer behavior i.e. an individual consumer maximizes his utility

from the consumption of goods and services subject to his budget constraint (Gravelle and Rees,

2004). The general solution for solving the problem of constrained maximization results in the

Marshallian demand functions. When the case of private goods and service is taken into consideration

the behavior of this microeconomic theory of consumer behavior is relatively easy as compared to

public goods or environmental resources. In this scenario, the individual who visits recreational site is

taken as a consumer of two goods i.e. recreational goods and services denoted by recij and all other

private goods denoted as xi, facing both budgetary and time constraints (Sarker and Surry, 1998).

Let’s assume that for representing the vector of private goods and recreational goods xi and recij

(i shows the number of individual 1, 2,…, n while j shows the site taken) where, px and pr show the

prices of these two set of goods respectively. Therefore the consumer can spend his income Yi on

purchasing these two set of goods. Hence, budget constraint of individual visitor takes the following:

Yi= wTw = pxxi+ prrecij (1)

Yi= income level of the individual consumer i,

w = hourly wage rate

Tw = total number of hours worked.

The individual visitor not only faces a budget constraint but also a time constraint because he has

to decide as how much time to allocate for work and leisure (recreation).

The time constraint is stated as

T = Tw + Tl (2)

T = total time endowment by the consumer

Tl = time devoted to leisure (recreation).

As travel cost to recreational sites is key determinant which influence the choice of visitor to visit

the site, so the travel cost of individual tcij ,which is yardstick of recreational site is taken as a function

of recij, thus final equation of the individual consumer is written as:

Uij=U ( xi , recij(tcij) ) (3)

By maximizing Equation (3) subject to Equations (1) and (2), the Marshallian demand function

for private goods and recreational goods are obtained as follow.

xi = g ( px, pr ,Yi, qj ) (4)

6

recij= f ( px , tci , Yi, zi ) (5)

Equations (4) and (5) represent the Ordinary demand functions of private goods as well as

recreational goods, respectively. In Equation 5, Yi shows individuals monthly income where zi is the

vector of individual socio-demographic characteristics like age, gender, residence, experience of the

available activities on site etc. Keeping in view the requirement of this work, the main focus will be

on Equation (5). Sarker and Surry (1998) stated that it is not easy to measure the flow of the

recreational goods and services directly therefore, number of trips to the recreational site will be used.

Equation (5) will pave a way for computing the consumer surplus per trip because its coefficients can

be calculated econometrically.

The rationale of this study is that since utility depends upon consumption of normal goods and

recreation goods. The conservation and improvements of these recreational goods depend on the

value assigned to these resources by the society. TCM helps to estimate this value and overall

consumer surplus. This method is based on the basic premise that the frequency of visits to a

recreation site decreases as the travel distance increases. The reason behind this decrease visitation is

an increase in financial as well as opportunity cost of time, leading to increase in travel cost (Loomis

and Walsh, 1997; Ward and Beal, 2000). Thus, the recreation trip demand is determined by travel

costs, price variable, and other relevant site characteristics and socio-demographic factors.

Our data contained individual visitors’ responses to single recreation sites; therefore, we used an

individual travel cost model (ITCM) to estimate consumer surplus for nature-based recreation in

Khanpur Lake. Single-site model is applied keeping in view the number of sites to be considered.

Literature shows that the visitors recreating in unique natural areas are more likely to travel longer

distances and spend more time on site (Hellerstein, 1991; Creel and Loomis, 1990; Smith and Kopp,

1980). To control for this effect, on-site time is included as an opportunity cost in the travel cost. The

number of trip taken to a site in a year is used to show ‘quantity demanded’ while trip cost represents

the price that is incurred reaching the site. Variation in demand is result of people living at different

distances and incurring different travel cost. Thus following equation shows demand function:

ri = ƒ (ttc) (6)

where, ‘r’ represents the number/quantity of trips taken by ‘i’ individual i=1, 2,…, k to site in past 12

months, and ‘ttc’ the travel cost. Measuring use rate or quantity variable is not straight forward,

therefore McConnell(1975) proposed that in utility maximization process that is used in TCM, its

7

necessary that each round trip should represent one unit of consumption. In similar way, price per

visitor trip rather than price per visitor day be considered.

While ttc, is the price that acts as policy variable and is also used for measuring benefits. When

making a choice of including expenses in price, two related issues arise which are discussed following

the study of Bishop and Heberlein (1979). The first issue is related to the choice of monetary expenses

that are to be included in estimation of price of recreational site and second is about the measurement

of time value. For monetary expenses, the variable costs of transportation is deemed as a good estimate

of financial cost.

The problem lies in measuring opportunity cost of time or travel time because it different from

out of pocket expenses. In earlier studies, only variable cost of transportation of round trip was used

as determinant of price for nearby visitors who had high frequency of visitation. Cesario and Knetsch

(1970) discovered that this cost alone is not sufficient for explaining the reason of less visitations of

distant visitors therefore the joint effect of two important components i.e. transportation cost and

travel time be used instead. Opportunity cost of time acts as important deterrent when making a

decision to visit distant sites, therefore this cost along with transportation cost is used to get total

travel cost.

There are other important factors that influence the demand of visitors like quality of site,

experience of recreational activities available at the site, demographic factors (gender, age, education,

and income) and visit to substitute sites. The variable of substitute site is an important demand shifter.

Caulkins, Bishop, and Bouwes (1985) stated that if travel cost to a given site is positively correlated

with that of substitute sites, and this cost is not included in total travel cost, the result will be more

inelastic demand curve. For avoiding this problem of model specification, the prices of substitute site

should be included in determinants of site demand. Thus the model can be represented by Equation

(7):

ri = ƒ (ttc, q, rexp, sdem, tcsub) (7)

ri = β0 + β1 ttc+ β2 q+ β3rexp + β4sdem + β5tcsub + u (8)

Variable ri, can take an integer value from 1 to k; These βi’s are those coefficients which will be estimated.

8

Table 1: Variables and Definitions

Variable Definition

ttc

Vector of trip cost incurred for visiting the site which include fuel cost, toll free, entry fee, time cost both for individual as well as those using shared transport

Q

Represents site and water quality

rexp

Represents the visitor’s experience of major recreational activities performed at the site like boating, cliff diving, jet ski, site seeing and riding

Sdem Represents the vector of the sociodemographic variables such as gender, age, educational and income level.

tcsub Travel cost of trip to substitutes sites

For estimating ITCM, an appropriate functional form is of due importance because it will

assist in deriving the demand function and consumer surplus (Ziemer, 1980). Before estimating our

demand function, it is important to consider the dependent variable ‘ri’ i.e. number of visits of each

individual in a given time. The reason being that certain unique properties are associated with this

variable, and if ignored can result in skew estimates. The first point is that common method of

estimation which is Ordinary Least Square (OLS), fails to work in this scenario, because this variable

do not follow a normal distribution. For such a distribution, the numerical variable must be

continuous but here the ‘ri’ variable takes the counts of visits, which is not continuous. Hence, instead

of normal distribution, count data model suits much in this case with Poisson method being the

appropriate form as used by Shaw (1998) when he was estimating his ITCM. In Poisson distribution,

dependent variable is discrete, non-negative number (r= 0, 1, 2,…). The evaluation method to be used

is Maximum Likelihood estimation represented by the following equation:

Pr =(ri=n) = f(ni , Xi β) ; n=0,1,2,… (11)

Pr=(ri=n)= 𝑒−𝜆𝑖 𝜆𝑖

𝑛

𝑛! ; n=0,1,2,… (12)

where λ is the parameter of Poisson distribution showing equal mean and variance.

As the questionnaire was distributed to visitor present of site, therefore our dependent variable

only take positive number of trips (i.e. visits > 0) (truncation). The non-visitors were not included,

firstly because of time and resource constraint, and secondly it was difficult to collect and determine

the price data as they have not visited the site. Hence, our sampling method is on-site sampling. The

9

counts are taken over a finite time period which is twelve months. Taking into consideration the

following characteristics of our dependent variable, Zero-Truncated Poisson distribution will be used.

Its functional form is derived from a standard Poisson distribution f(r; λ) which is as followed:

𝑓(𝑟; 𝜆) = 𝑃(𝑋 = 𝑟|𝑋 > 0) =𝑓(𝑟;𝜆)

1−𝑓(0;𝜆)=

𝜆𝑟𝑒−𝜆

𝑟!(1−𝑒−𝜆 ) (13)

The functional form of our model will be Log-Lin showing that dependent variable ‘r’ is positive

number therefore travel cost function take the following form:

ri = exp (β0 + β1 ttc+ β2 q+ β3rexp + β4.DumAge + β5.DumMaritalstatus + β6.DumProvine + β7.

DumMonthlyIncome + β8.DumEduLevel) (14)

Taking natural Log on both sides, Equation 14 becomes:

Ln(ri) = β0 + β1 ttc+ β2 q+ β3rexp + β4.DumAge + β5.DumMaritalstatus + β6.DumProvince + β7.

DumMonthlyIncome + β8.DumEduLevel (15)

The consumer’s surplus for each trip will equal to an inverse of β1 i.e. travel cost variable

coefficient:

CSpertrip = - 1/β1

5. Questionnaire design

The questionnaire for this survey was designed in 2016, the time span chosen was 1 whole year

i.e., 2016 for all seasons. The target population was the visitors to Khanpur Lake who came for

recreational activity on the lake side irrespective of age, gender, income level, province etc. thus making

it a representative sample. A random, although convenient sample of 150 respondents was chosen.

Further the design of questionnaire is such that it covers complete detail on the variable presented in

the model. First part contains questions about socio-demographic characteristic. Second part is about

the cost of travelling as well as opportunity cost of time incurred. Third part contains experience in

major recreational activities, fourth is choice about site quality and willingness to pay for improving it

and last part is about choice of substitute site. There are five major parts with subparts. All the

questions are straight forward and to the point. Both open and close ended questions are asked

depending upon the need of data collection. The details are given in the Appendix attached in the end.

10

6. Results and Discussions

This study is carried out using questionnaire, in first part descriptive statistic is given and in second

the estimated results.

6.1. Descriptive statistics

An overview of visitor profile given in Figure 1 depicts that most of the visitors were male i.e.

62%, most of these visitors fell in the age category of 17-25 i.e. 40% followed by 26-40, 35%. On

seeing the marital status of these visitors, they were mostly married making 58% of the total size, the

reason being that people travelled in family group. As far educational status is concerned most of the

respondents stated that they belonged to bachelors group which is 45%, while 44% of them fell in the

category of masters and above. Almost 43% of the respondents were students while 24% were self-

employed followed by permanent salaried employed, i.e, 19%. 21% of the visitors fell in income

category of 21,000-50,000. Majority of the visitors were from urban settings i.e. 79% and the rest 20%

to rural area.

In Figure 2, people from Punjab hailed the most i.e. 50%, followed by KPK 42%. Among the

total sample, 95% visited in a group, which means with family or friends while the rest 4% were alone

and the main purpose of their visit was Khanpur Lake i.e. 54%. In rest of population whose main

purpose was not Khanpur Lake, 62.03% visited Taxila Museum, 24.05% visited the orchids, 3.91%

Julian and 10.01 any other. This shows that Taxila Museum is a complementary site.

In Figure 3 the most appealing attribute of Khanpur Lake was its ‘naturalness/scenic beauty’

for 86% of respondents. In the end a question on required improvements showed that 47% of

respondents wanted a proper waste disposal and for family recreation, 36% desired restricted place

for families.

In Figure 4, Quality of a site, i.e., land, water and the facilities provided there increase visitation,

therefore visitors were asked to rate the site quality, according to 36% respondents, site quality was

ranked as ‘good’ while the for the rest 28% it was ‘fair’ and 21% as poor. The highest reason deemed

for poor site quality ‘littering by visitors’ i.e. 82% respondents. Maximum respondents, i.e., 74% were

of the view that ‘government financing’ should be a mode of payment for improving site quality. 93%

of visitors were willing to pay if there was no other source of finance available for making the desired

improvements on site and the justifiable amount was Rs. 50 according to 51% respondents.

11

Figure 1: Gender, Age, Marital Status, Educational Level, Employment Status, Monthly

Income

37.58%

62.42 %

Gender

Female Male

44%

35%

21%

Age

25 and below 26-40 Above 41

43%

57%

Marital Status

Unmarried Married

12%

45%38%

5%

Educational Level

Less than or matriculate Bachelors

Masters Above Masters

44%

13%

19%

24%

Employment Status

None

Salaried emp(casual)

44%

11%

21%

17%

7%

Monthly Income

None

20,000 or less

21,000-50,000

51,000-100,000

12

Figure 2: Type of Resident, Province, Group Visit, Khanpur Main Purpose of Visit, Other

Visits

21%

79%

Type Of Resident

Rural Urban

43%

50%

3%4%

Province

KPK Punjab Baluchistan Sindh

95%

5%

Group Visit

Yes No

54%46%

Khanpur Main Purpose Of Visit

Yes No

62%24%

4%10%

Other Visits On Way To Khanpur Dam

Taxila Museum Orchids Julian Any other

13

Figure 3: Most Valued Attributes, Improvements Desired

Figure 4: Site Quality, Reasons of Poor Quality, Mode of Payment for Improving Site

Quality, Willing to Pay Entry Fee, Justifiable Entry Fee

87%

7%4%

2%

Most Valued Attributes

Naturalness/scenic beauty

Infrastructure and activities

Parking arrangement

Less costly

47%

19%

10%

11%

2%1%

9% 1%

Improvements Desired

Proper waste disposal

Safety measures

Manage congestion

Arrange festivals

Parking facility

Lightening

Sitting arrangements

Pavements and fence

3%

22%

29%37%

9%

Site Quality

Very poor

Poor

Fair

Good

81%

3%

16%

Reasons Of Poor Quality

Littering by visitors

Effluents from nearby locality

Waste from nearby restaurants

14

6.2. Empirical Results

The empirical model is estimated as given in Equation (15). The estimation results are

consistent with the individual travel cost model and are statistically significant in most of the cases.

The estimation results are given in Table 2. As this is a nonlinear model, R2 is not of particular

importance. Instead, likelihood ratio statistics is important. Its value is 82.24, which is significant at

1% level. This means that explanatory variables explain the number of trips (r).

The estimated coefficient of travel cost is -0.0003 which implies that with an increase of

Rs.10,000 in cost to reach Khanpur Lake, the number of trips will decrease by 3 units on average

which is significant at 5%. The reason being that visitors facing higher fuel and related costs including

high opportunity cost of time will reduce trips. These findings reject the null hypothesis and show that

travel cost affect the rate of visitation thaqt is in harmony with previous studies such as, Sanchez

(2008) Mendes (2003) and Landsdell and Gangadharan (2001).

11%

74%

15%

Mode Of Payment For Improving Site Quality

Charge vehicle parking Government financing

Private donations

93%

7%

Willing To Pay Entry Fee

Yes No

34%

52%

11%3%

Justifiable Entry Fee

Rs. 20 Rs. 50 Rs.100 More than 100

15

The site quality covering the cleanliness and environmental quality of the lake is insignificant.

The results based on the visitor’s level of satisfaction suggests that quality variable (as it is defined)

does not matter hence, the role of additional improvement in quality is uncertain. Similarly, the variable

of travel cost to the complementary sites such as Taxila museum and orchards has a negative sign. It

implies that when the cost to these sites increases, the trips to the lake will also decline although the

variable is statistically insignificant.

Experience of water related recreational activities available at the lake appears significantly in

the model showing that the rate of visitation to Khanpur Lake increases as the experience of an

individual increases. Experience accounts for the visitor’s level of experience in different activities

such as boating swimming, cliff diving etc. The results revealed that for every unit of increase in

experience level, trip increase by 13% and is highly significant. As Khanpur Lake is a hub of all these

activities, therefore, people with an aptitude for these activities will visit more often. Our result for

the recreational experience is consistent with the Huth and Morgan (2011) and Shrestha et al. (2007).

The interpretation of dummy coefficient in case of semi-log model is as followed. As compared to age

group of “25 and below”, visits of people of age group ‘above 25 age1’ is by 100[𝑒0.478 − 1] = 59%

lower and is significant at 5%. The reason is that young people tend to visit more frequently to

recreational sites and the activities available here are more appealing for the youth like diving,

swimming, paragliding etc. Moreover, as age increases individuals engage considerably more towards

the economic activity thus decreases the leisure and recreational activities.

The residential location of the respondent covered through the province has a significant

impact on the rate of visitation. Individuals from the province of KPK visits 100[𝑒0.56-1] =64% more

as compared to individuals from the Punjab and other provinces and the variable is also statistically

significant at 5% level. The reason is that Khanpur Lake is situated in the KPK province and due to

proximity, people of this province visits more frequently. In addition to travel cost, monthly income

has a positive impact on number of trips, i.e., as compared to category of ‘50,000 and less’, the higher

income group of ‘MI51,000- 200,000 a1hd1’ has 100[𝑒0.24-1]= 46% less visits. The reason being that

sample size mostly comprise of unemployed people. As the cost of trip is not high this variable is

insignificant. Economic inactivity induces more visitation, as seen in the table. “female” tends to visit

more as compared to “male” and is highly significant, similarly people of “rural” area visits 41% more

than “urban” and “unemployed” has 53% more visitation than the “employed” counterparts.

16

Table 2: Zero-truncated Poisson regression results of the model

Variable Coef. Std. Err. Z P>z

Travel Cost -0.0003 0.0001 -3.20 0.001 Quality 0.0291 0.5279 0.55 0.581 Experience 0.1378 0.0218 6.32 0.000 Cost_Sub_Site -0.00004 0.0001 -0.96 0.336 Age_above26 -0.4782 0.1965 -2.43 0.150 Province_KPK 0.5642 0.1387 4.07 0.000 Income51K-200K -0.2467 0.1823 -1.35 0.176 Income-abv-200K 0.0275 0.2805 0.10 0.922 Female 0.4062 0.1879 2.16 0.031 Rural 0.3579 0.1694 2.11 0.035 Employment 0.4326 0.1757 2.46 0.014 Constant -0.6461 0.3636 -1.79 0.074

Observations = 149

LR chi2(18) = 82.24

Prob> chi2 = 0

Pseudo R2 = 0.1498

6.3. Calculation of Consumer Surplus

For our Poisson model, the estimated consumer surplus turns out to be PKR 3333 by using

the formula give in equation 5, (negative inverse of the travel cost coefficient).

CS = - 1/β1

= - 1/-0.0003

= 3333

The low consumer surplus is consistent with the results obtained from studies in developing

countries as Day (2000) estimated CS of USD 18.6 for natural reserves in South Africa while Bilgic

and Florkowski (2007) obtained CS of USD 161.

6.4. Calculation of Recreational use value:

Recreational use value is sensitive to the rate of visitations, i.e. with increase in number of

visitors, more revenue will be generated with the same entry fee. Recreational use value estimate is

based on an annualized mean consumer surplus per visit of Rs. 3333 assuming 200 trips on week days

and 500 trips on weekend Adil and Delhavi (2011). Table 3 give the annual recreational use value, in

case of our study that amounts to Rs. 121.3 million.

17

Table 3: Total Recreational use Value of Khanpur Lake

Item Days Count

Cost per head (Rs.)

Visitors per day

Recreational use value (Rs. Million)

Week days 313 3333 200 34.662

Weekends* 52 3333 500 86.658

Total Value 121.320

Note: * Only Sunday is considered as weekend in the analysis.

7. Conclusion

The study identifies the key determinants of non-marketed recreational In the light of our

objectives of finding the visitors recreational demand, willingness to pay for improving site quality and

estimation of consumer surplus of visitors per trip to Khanpur Lake was carried out. For this purpose

an on-site survey was conducted from the visitors of Khanpur Lake on different occasions using

simple random sampling method and responses are analyzed using ITCM.

The results reveal that there are many factors which affect the demand of visitors, the most

important of which is travel cost. With increase in travel cost, the rate of visitation is negatively

affected. With increase in distance the trips were also affected that’s why people of KPK are found

making considerably more trips than the visitors from other provinces. Similarly various other factors

like quality of site and the attributes like naturalness, infrastructure etc. and experience of on-site

activates like boating, swimming, cliff-diving increased the visitor’s demand of this place.

The willingness to pay for entry fee for Khanpur Lake was high and the results are interesting as

majority of visitors gave a positive response and they were willing to pay an entry fee that would be

sufficient in developing and preserving the site. This pointed towards that this revenue from the site

can be a potential source to cover its maintenance and development costs. The annual recreational

use value obtained through calculating consumer surplus turns to be Rs.121.2 million. This is the direct

consumptive value of Khanpur Lake without addition of indirect use. This points out towards the

potential of this site if in future the visitation rate is increased and if more developments are carried

out.

In the light of our findings following are the recommendations:

Government can increase consumer surplus by providing facilities like proper sitting

arrangement with shades, separate family area, emergency first aid facility and experienced

divers in case of drowning and also hotels for night stay.

18

As natural scenic beauty was the most valued attribute and source of increased visitor’s

demand of Khanpur Lake, government should take initiatives to give it a status of nationally

recognized natural site to preserve it for future use also.

Civic participation and awareness is also important for maintaining quality of this place.

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22

Appendix – 1

Questionnaire

Valuing Non-Marketed benefits of Khanpur Dam by Using Travel Cost Method

Table A1: Socio-demographic characteristics

A1a: Age:

[1] Below 16 years [2] 17-25 [3] 26-40 [4] 41-60 [5] above 60

A1b: Gender:

[1] Male [2] female

A1C: Marital status:

[1] Unmarried; [2] married; [3] divorced [4] widowed [5] any other ___________

A1d: Number of family members: __________________

A1e: Educational level:

[1] Less than or matriculate [2] bachelors [3] masters [4] any other _______________

A1f: Employed:

[1] Yes [2] no

A1g: Primary occupation:

[1] Student [2] Salaried employed (casual) [3] Salaried Employed (permanent) [4] self-employed

[5] any other __________

A1h: Monthly income:

[1]20,000 or less [2] 21,000-50,000 [3] 51,000 – 100,000 [4] 100,000 – 200,000 [5] Above 200,000

A1i: Residential area:

[1] Urban [2] rural

A1j: Province:

[1] KPK [2] Punjab [3] Baluchistan [4] Sindh [5] Gilgit-Baltistan [6] Islamabad [7] FATA [8] AJK

A1k: Visiting in group:

[1] Yes [2] no

(If yes, proceed to Table A2)

Table A2: Visiting party characteristics, travel and expenditure pattern

A2a: Composition of Visiting Party (Nos.)

A2aa [1] Children (≤14) a) No. of male __________ b) No. of female ____________

A2ab [2] Adults (≥14 to ≤65) a) No. of male __________ b) No. of female __________

A2ab [3] Elders (above 65) a) No. of male __________ b) No. of female ___________

23

A2b: Number of dependents within total party (“dependents” are defined as family members whose

costs are borne by the respondent): __________

A2c: Mode of transport:

[1] Motorbike or bicycle [2] own car [3] taxi [4] Hired hiace or bus; [5] Public transport [6] Other-

A2d Travel Time one-way (hours.): ___________

A2e: Distance one-way (Km.): _________

Table A3: Travel cost

A3a: In case of privately owned vehicle:

A3aa: No. of people in your car: _______________

A3ab: Fuel type:

[1] CNG [2] Diesel [3] Petrol

A3ac: Fuel cost on way to Khanpur Dam (Rs): ________

A3ad: Toll fee: _________

A3ae: Entry fee (individual): _________

A3af: Entry fee (car parking): _________

A3ag: Any other cost (food, challan, etc) on way (mention in Rs) ___________

A3b: In case of shared (public/rented) vehicle:

A3ba: Cost incurred from home to common point of departure (if any): __________________

A3bb: Mode of transportation from common point of departure to Khanpur Dam:

[1] Taxi [2] Hiace [3] Coach [4] Bus [5] Public transport [6] Other __________

A3bc: No. of people in the vehicle: ________

A3bd: Agreed rent of vehicle: _________

A3be: Your share: ___________

A3bf: entry fee (individual): ________

A3bg: Any other cost: ___________

A4: Opportunity cost of time

A4a: No. of hours worked on average per day in 2016:

A4b: No. paid vacations and sick leave days availed in 2016: ____________

A4ac: Number of off days in the week:

[1] 1 day [2] 2days [3] neither

A4ad: How much holidays can you avail in a year without income deduction? _________

24

A4ae: Instead of this trip to Khanpur Dam, would you have been working?

[1] Yes [2] no

A4af: If yes, how much income could you have received for that work (Rs) per day: _____________

A5: On-Site expenses (activities, rides/swings, food)

A5a: Cost per person if trip taken in boat (long, short): ________

A5b: cost per individual if trip taken using Jet Ski (long, short): ________

A5c: Cost of rides or swings taken by kids: ______________

A5d: Cost of food items consumed on site per person (homemade, snacks, cold drinks etc) : ______

A5e: Any other cost please mention items and cost: __________

Table A6. Multiple destination trips & visits to substitute site

A6a: Any other sites visited on way to Khanpur Dam or any plan of visiting on way back?

[1] No

Yes [1] Taxila Museum 2) Julian 3) Sirkap 4) Any other (Mention) __________

A6c: Which site is your main purpose of visitation?

[1] Taxila Museum 2) Julian 3) Sirkap 4) Khanpur Dam

A6d: If Khanpur Dam not visited today, would instead have spent day at?

[1] Rawal lake [2] Murree [3] Tarbela dam [4] Mangla dam [5] none

A6e: Have you visited any site in the above mentioned list (A6d) before:

[1] Yes [2] no

A6f: Travel cost to the above mentioned site: __________

A6g: How would you rate this place as compared to Khanpur Dam?

[1] Very poor [2] poor [3] fair [4] good [5] very well

A6h: Is it your first visit to Khanpur Dam:

[1] Yes [2] no

A6i: If no, number of visits in year the 2016: __________

Table A7: Rate your prior experience of recreational activities at Khanpur Dam (showing the

number of times you have performed the activity)

A7a: Boating:

[1] 1 time or less [2] 2-5 times [3] 6-10 times [4] more than 10 times

A7b: Cliff diving:

[1] 1 time or less [2] 2-5 times [3] 6-10 times [4] more than 10 times

A7c: Swimming:

25

[1] 1 time or less [2] 2-5 times [3] 6-10 times [4] more than 10 times

A7d: Jet Ski:

[1] 1 time or less [2] 2-5 times [3] 6-10 times [4] more than 10 times

A7e: trails:

[1] 1 time or less [2] 2-5 times [3] 6-10 times [4] more than 10 times

A7f: Any other please mention name and level of experience:

Table A8: Quality of site (Land, Water)

A8a: Rate site quality (Land, water):

[1] Very poor; [2] poor; [3] fair; [4] good; [5] very good;

A8b: In case of option 1 and 2 mention reason:

[1] Littering by public (Cans, wrappers, car washing) [2] effluents from nearby locality [3] Waste

from nearby restaurants [4] any other

A8c: Satisfied with recreational experience:

[1] Yes [2] no

A8c: Most Satisfactory attributes (rank upto three):

[1] Naturalness [2] Infrastructure [3] parking arrangement [4] less costly [5] Security measure [6] any

other ___________

A8e: Do you think improvements are required in Khanpur Dam:

[1] Yes [2] no

A8f: If yes, type of improvements desired (please rank up to three):

[1] proper waste disposal; [2] heightened safety measures for swimming and boating; [3] manage

congestion in peak visitation time ; [4] arrange festivals [5] parking facility [6] lightening [7] sitting

arrangement [8] pavements and roads (please rank up to three)

A8g: Mode of payment for improving the site:

[1] Charge vehicle parking fee; [2] government financing; [3] private donation (NGOs); [4]

other_______;

A8h: Willing to pay entrance fee, if no other financing mode available:

[1] Yes [2] no

A8i: For improving site quality how much entry fee is justifiable:

[1] Rs. 20 [2] Rs. 50 [3] Rs. 100 [4] more than 100

A8j: In favor of improved recreational activities for families at Khanpur Dam:

[1] Yes [2] no

A8k: If yes state select any three improvements:

[1] Wheel chairs for elders [2] restricted place for families only [3] variety of swings for kids [4]

lavatory [5] variety and hygienic food [6] Security measure

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