Estimating and comparing demand for an event using stated choice and actual visitor spending data

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1 Estimating and comparing demand for an event using stated choice and actual visitor spending data Economic impact of the Peace & Love music festival in Sweden Tobias Heldt and Reza Mortazavi * Department of Regional studies Economics and Tourism, Dalarna University

2 Background and motivation for the study Estimates of economic impact of an event using direct spending and Input output analysis has limitations To capture wider economic benefits of an event a full Cost and Benefit Analysis (CBA) is the proper tool to use However, CBA is costly for smaller events, regional Hallmark events etc. Finding a cost effective alternative as an alternative for estimating welfare impact is called for (Mules and Dwyer (2006)

3 Background and motivation for the study (cont.) Valuation methods can be used to estimate welfare effects and explore visitor preferences Travel cost method Produces estimates of consumer surplus Disadvantage: relying on several assumptions Stated choice experiment Produces estimates of consumer surplus and attributes of importance for the choice to visit (a tourist destination or an event) Disadvantage: hypothetical choice Both methods relatively cost-effective

4 Twofold purpose Firstly to estimate the demand for a music event using two stated choice experiment (SCE) and travel cost method (TCM) Secondly to compare the welfare and discuss their relevance for event policy and event management

5 Peace & Love festival, Borlänge, Sweden Borlänge

6 Empirical study 2012: Data collection Self complete questionnaire 1005 respondents Sampling Within festival area + camping Wednesday Saturday High response rate 90 % Mixed stratified sampling to avoid selection bias

7 Result 1 Zonal travel cost method gives estimates of consumer surplus between MSEK depending on functional form used.

8 Input and assumptions for ZTCM Input for estimations Visitors between years old Travel costs, time costs and entrance fee Assumptions 60 % arrives by car, 40 % by train Time costs Recommended values for longer private trips

9 Applying ZTCM Visiting rate estimated by V i = f(tt i, x) Demand estimated following Chotikapanich and Griffiths (1998) m Q = ppp i f(tt i + P) i=1 Calculating consumer surplus CC = 0 m ppp i f(tt i + P) dd i=1

10 Table 3 Point and 95 % confidence interval estimates of consumer surplus based on TCM for different functional forms. Model Consumer surplus 95% Confidence interval Linear-Linear Log-Linear Linear-Log Log-Log Reciprocal-Linear n/a n/a Linear- Reciprocal

11 Result 2 Stated choice experiment provides two types of result: an estimate of consumer surplus and estimates of the visitors preferences for attributes of importance for their choice so attend the festival

12 Choice experiment scenario Assume that you are confronted with the choice of buying tickets for the Peace & Love festival. There are two types of Peace & Love festivals and you have to choose one of these. The only thing that differs between the two alternatives is the price, number of visitors and number of days. i.e the festivals have the same bands as this year s festival, the same location and the time of year is the same. Which festival would you choose? You also have the option to refrain from visiting the festival

13 Table 1 Proposed attributes and levels used for the choice experiment Attribute Description Level Price Number of visitors Number of days Ticket price for the complete festival. It includes entrance fee for all days but not access to the camping area. States the number of tickets that have been sold and is an estimate of the total number of visitors to the festival. States the number of days for the festival. It includes the Peace & Love forum that starts up the festival SEK SEK SEK SEK visitors visitors visitors 1. 4 days 2. 5 days 3. 6 days

14 Figure 1. Example of choice set for the Peace & Love choice experiment Peace & Love A Peace & Love Ticket price 1345 SEK 1945 SEK Number of visitors 40,000 visitors 60,000 visitors Number of days 4 days 5 days B I would choose: Peace & Love A Peace & Love B I would refrain from visiting Peace & Love

15 Applying stated choice experiment based on Random utility maximization Binary logit, to estimate indirect utility function V i = β 0 + β 1 x 1i + β 2 x 2i + β 3 x 3i Consumer surplus log-sum (Small and Rosen (1981) E(CC) = 1 β [ln(exp V i 1 + V j 1 ln(exp V i 0 + V j 0 ].

16 Table 5 Point and 95 % confidence interval estimate of consumer surplus based on the discrete choice experiment Consumer surplus 95% Confidence interval (SEK)

17 Policy implications and further research Results can be used by both planners Impact of an event estimated as welfare effects Cost effective and consistent with welfare economics and event managers Stated choice method estimates consumer surplus convergent validity with TCM SC has potential as a cost effective method to estimate welfare effects of events SC method also estimates demand for attributes of importance for the individuals choice of attending an event

18 Policy implications and further research Future research Further explore the validity of the stated choice method for event impact evaluation in relation to direct economic impact measures Inputs into CBA of Mega events Explore the use of combining revealed and stated preferences methods in an overall study design