Using stated preference responses to address endogeneity in the single site travel cost equation

The travel cost (TC) method models the number of trips to a recreation site as a function of the costs to reach that site. The single site TC equation is particularly vulnerable to endogeneity since travel costs are chosen by the visitor. This paper suggests a control function approach that breaks the correlation between travel costs and the error term by plugging inferred omitted variables into the TC equation. Inference of omitted variables is carried out on an endogenous free, stated preference equation that, arguably, shares omitted variables with the TC equation. By revisiting the TC and contingent valuation (CV) data analyzed by Fixand Loomis (1998), this paper infers the omitted variables from the CV equation via a finite mixture specification -an inference strategy whose justification resembles the use of heteroscedastic errors to construct instruments as suggested by Lewbel (2012). Results show that not controlling for endogeneity in this particular case produces an overestimation of welfare measures. Importantly, this infer and plug-in strategy is pursuable in a number of contexts beyond recreation demand applications.