RECREATION DEMAND CHOICES AND REVEALED VALUES OF LEISURE TIME DOUGLAS M. LARSON and SABINA L. SHAIKH* Anapproach tojointly estimating an endogenous marginal value of timefunction and a recreation budget share equation is developed. Thespecifhation requirements for the marginal value of time function, to ensure consistency with the matnlained hypothesis of two binding constraints on choice, are articulated. The estimating model consistent with these requirements that nests several conventional treatments of the marginal value of time is highly significant. The general endogenous marginal value of time model outperforms other approaches and .shows a more complex relationship between the marginal value of time and the individual's wage ihan has been u.sed in previous work. {JEL J22, Q26) I, INTRODUCTION At least since the work of Becker (1965), it has been recognized widely that time may play an important role in eonsumer demand. One of the areas where this may be most significant empirically is in the valuation of natural resource amenities through their associated recreation demands. A principal reason is that recreation is a time-intensive commodity, so that the value ofthetimcspcnt in recreation would be expected to play a large role in its overall value. The poten- tial bias to consumer's surplus estimates of the neteconomic value of recreation from excluding time "prices" from the demand model has been recognized from the outset, for example by Knetsch (1963) and Clawson (1959). To incorporate time into recreation demand models, researchers have generally adopted the practice suggested by McConnell (1975) of defin- ing the '*fuir priceof recreation as the money cost of a trip plus its monetized time cost, though the use offuil" budgets alsocalled for by the Becker approach is less widespread. Bockstael et al. *We thank Paul Mason and participants in the 74th Annual WEA International Conference in San Diego for helpful comments, though any errors are our own. Commcnls by an anonymous reviewer improved the article considerably. Lar.son: Professor, Department of Agricultural and Resource Efonomius, and Member of the Giannini Foundation of Agricultural Economics, University of California. Davis. CA 95616, Phone l-5?(l-752-3586. Fax 1-530-752-3586. E-mail dmlarsDn(a)ucdavis.edu Shaikh: Senior Research Economist. RCF Economic and Financial Consulting. 333 N, Michigan Avenue. Suite S04. Chicago. IL 60601. Phone 1-312-431-1540. Fax 1-312-431-1170, E-mail sabinaCMiuchicago.edu (1987) pointed out quite clearly that both full budgets and full prices are required in the demand function if the recreationist is jointly choosing labor supply with recreation at an exogenous marginal wage, but that the structure of demand was unclear if the individual was not making such marginal labor supply choices (i.e., if he or she was working fixed hours). Subse- quently, Larson and Shaikh (2001) showed that the full prices full budgets specification is sufficient to satisfy the constraints on demand parameters that arise because choice is made subject lo two binding constraints, regardless of the individual's position in the labor market. They also pointed out that models that use full prices but only money income (in effect ignoring the role of time as a resource eonstraint) cannot be consistent with the requirements of choice subject to two constraints. Although the outlines of how time should enter the structure of demand are becoming clear, a major unresolved issue is how to deter- mine its value in practice. Several studies have followed the basic logic of Becker's early work, assuming that the opportunity cost of recrea- tion time (i.e., the value of other time forgone in favor of recreation) is an exogenous parameter, such as the average wage rate or. more com- monly, some fraction thereof This fraction is either chosen arbitrarily or estimated as part of the recreation demand model, as in Cesario (1976), McConnell and Strand (1981), and Smith etal. (1983). Such assumptions may be erroneous for a variety of reasons. Assuming the average wage is the appropriate opportunity cost of time Economic Inquiry (ISSN 0095-2583) Vol. 42, No, 2, April 2004, 264-278 264 DOI: IO.lO93/ei/cbhO59 C.1 Western Economic Association International