Department of Economics

State Dependence and Long Term Site Capital in a Random Utility Model of Recreation Demand

Department of Economics
University of Delaware
Working Paper #2008-02

State Dependence and Long Term Site Capital in a Random Utility Model of Recreation Demand

<p none"="">D. Matthew Massey and George R. Parsons


Conventional discrete choice Random Utility Maximization (RUM) models of recreation demand ignore the influence of knowledge, or site capital, gained over past trips on current site choice, despite its obvious impact.  We develop a partially dynamic RUM model that incorporates a measure of site capital as an explanatory variable in an effort to address this shortcoming.  To avoid the endogeneity of past and current trip choices, we estimate an auxiliary instrumental variable regression to purge site capital of its correlation with the error terms in current site utility.  Our instrumental variable regression gives a fitted value ranging between 0 and 1 for each alternative for each person – a prediction of whether or not a person visited a site.  Results suggest that the presence of accumulated site capital is an important predictor of current trips, and that failure to account for site capital will likely lead to underestimates of potential welfare effects.

JEL Code: Q26

Key Words: Random Utility Model; State Dependence; Non-Market Valuation

The Lerner College is home to a state-of-the-art financial trading facility, the $1.4 million student-led Blue Hen Investment Fund, a student-managed restaurant and hotel, a high-technology development center of a global bank and a start-up experience for students with new business ideas.

Lerner College faculty - like Anu Sivaraman, who is among Social Media Marketing Magazine’s “Top 100 Marketing Professors on Twitter” and’s “Top 50 Marketing Professors on Twitter” - are thought leaders who command attention from influential business audiences, economists and policy makers.

All Lerner College departments offer experience-driven learning and emphasize evidence-based analytics methods to enrich the student experience. Here, finance students visit New York City’s financial districts for a first-hand look at markets trading and to meet with UD alumni.

Charles W. Horn, AS75, and wife Patricia, recently made a $3 million commitment to enhance and expand entrepreneurial studies.

  • Alfred Lerner College of Business & Economics
    303 Alfred Lerner Hall  •  Newark, DE 19716  •  USA  •  ©