Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 648: Demand and Welfare Effects in Recreational Travel Models: A Bivariate Count Data Approach

Jörgen Hellström () and Jonas Nordström ()
Additional contact information
Jörgen Hellström: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Jonas Nordström: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: In this paper we present a non-linear demand system for households' joint choice of number of trips and days to spend at a destination. The approach, which facilitates welfare analysis of exogenous policy and price changes, is used empirically to study the effects of an increased CO2 tax. In the empirical study, a bivariate zero-inflated Poisson lognormal regression model is introduced in order to accommodate the large number of zeroes in the sample. The welfare analysis reveals that the equivalent variation (EV) measure, for the count data demand system, can be seen as an upper bound for the households welfare loss. Approximating the welfare loss by the change in consumer surplus, accounting for the positive effect from longer stays, imposes a lower bound on the households welfare loss. From a distributional point of view, the results reveal that the CO2 tax reform is regressive, in the sense that low income households carry a larger part of the tax burden.

Keywords: demand analysis; welfare effects; count data; bivariate zero inflation

JEL-codes: C15; C34; C35; C51; D12

24 pages, February 25, 2005

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