Effects on welfare measures of alternative means of accounting for preference heterogeneity in recreational demand models

Abstract

Multiattribute-revealed preference data are used to investigate heterogeneity in a sample of kayakers for a panel of whitewater sites in Ireland. This article focuses on a comparison of preference hetero-geneity using a random parameter logit model with correlated tastes and a latent class model, in terms of the implications for welfare measures of environmental quality and site-access changes. Recre-ationalists ’ skill levels are found to affect preferences in both approaches. Statistics for the estimated distribution of welfare changes for the average respondent are computed for changes in site attributes, but contrary to previous work, these are found to be of similar magnitude. Key words: latent class models, preference heterogeneity, random parameter logit, whitewater kayaking. For many years, the assumption that prefer-ences are homogenous dominated revealed preference analysis of the demand for non-market goods albeit with some notable excep-tions such as Morey (1981) and Morey, Rowe, and Watson (1993). In a seminal paper, Train (1998) emphasized that explicit recognition of taste heterogeneity is important in the esti-mation of destination choice random utility models to avoid bias in attribute coefficient es-timates, biased welfare change measurements from site attribute variations, and ultimately poor policy decisions. In this article we analyze site choice decisions for whitewater kayakers, comparing two empirical models that have re-cently emerged as a way of accounting for unobserved taste heterogeneity across indi-viduals, namely the random parameter logit (RPL) model and the latent class (logit) model (LCM). The RPL model and LCM are cho-sen because they have been championed as the most promising specifications to address unob-served taste heterogeneity, and yet represent fundamentally different approaches from that Dr. Stephen Hynes is economist in the Environmental Modelin