Noisy Wage Fractions and Cost Insignificance in Recreation Demand Models

Economists modeling recreation decisions commonly assume that the shadow value of time is a specific proportion of the wage rate. This ignores idiosyncrasies that may arise owing to labor market disequilibrium or idiosyncratic differences in constraints on time and marginal utilities of work and leisure. Economists may account for these sources of heterogeneity by estimating the proportion of the wage rate as a random parameter, that is, a “noisy wage fraction.” We apply a noisy wage fraction approach that allows for multiple noisy wage fractions using a latent class modeling framework. This framework also allows us to control for individuals who, from the researcher’s perspective, are not influenced by travel costs, which we refer to as “cost insignificant” behavior. We apply this model to Alaska saltwater fishing trip data and find support for the presence of cost insignificance behavior (4% of the sample), but less evidence of multiple noisy wage fractions.