The first part of the paper develops the basic demand system and its properties,
then the its implementation in situations where both time and money are important
constraints on demand (as is usually the case with recreation demand) is discussed.
Finally, the DS demand system is illustrated using data on whalewatching in northern
California. The empirical model jointly estimates the shadow value of leisure time and
the 2-constraint whalewatching demand system for three sites in proximity to one
another.
The demand model estimates are in conformity with the integrability conditions,
and are highly significant for two of the three sites, with expected signs on quality effects
and on the price-income relationships for all three. The marginal value of time implied
by the model estimates is about $6/hr, with a range in the sample from about $0.50 per
hour to $13/hour. The demand parameters imply finite access values in spite of demands
being price-inelastic at baseline prices and quantities, which illustrates a potential
advantage of the DS system relative to some of the other flexible forms.
The Model
The DS model begins with an expenditure function of the form
8 8 ʌ ZJZ v,1 Г #! + !#зР8 !"4p8^∣ Z14
/(p8,?) œ )(p,M) ∙ — e + ?e (1)
where p38 œ p3/)(p,M) are normalized prices, with )(p,M) being any function of prices
and income that is homogeneous of degree 1 in (p,M). The use of normalized prices and
income imposes the desired homogeneity properties on demands, expenditure, and
indirect utility (LaFrance and Hanemann).
One can also define the normalized expenditure function as