California Sea Grant College Program

This dissertation uses a finite mixture logit (FML) model to investigate the heterogeneity of preferences of beach users for water quality at beaches in Southern California. The results are compared with conventional approaches based conditional logit (CL) and random parameters logit (RPL). The FML approach captures variation in preferences by modeling individual recreator choices using a mixture of several distinct preference groups, where group membership is a function of individual characteristic and seasonal variables. The FML parameter estimates are used to calculate welfare measures for improvements in beach quality through a reduction of water pollution. The FML segment specific welfare measures bound the traditional CL and RPL mean welfare estimates, and have the advantage of highlighting the distribution of the population sample's preferences. Analysis of beach recreation site choice data indicates the existence of four representative preference groups within the survey respondent sample. As a result, willingness to pay measures for improvements in water quality and other beach site attribute changes can be weighted across individuals to calculate the distribution of individual welfare measures.

One group of recreators is characterized as people who go to the beach and engage in water recreation with children. An interesting finding is that this group has a lower mean WTP for improving water quality than groups who go without children. This may well be an example of cognitive dissonance: parents find they go to the beach more often than others who don't have children, since that keeps the children occupied and happy, and they adapt their perception of the water quality to be consistent with their behavior.

Previous environmental and resource economic applications of the FML have been limited to applications with small choice sets (6) and group membership variables (4), This paper extends the FML model through the estimation of a large (51) choice set with 9 membership variables. This application is the first to incorporate seasonal variables into the group' membership function to capture seasonal heterogeneity.

Estimated welfare changes are calculated using the compensating variation measure for several hypothetical beach closure and water quality degradation scenarios. Estimation results indicate that the FML welfare estimates differ from those calculated using the traditional logit or RPL models. The FML model sheds light onto which subsets of beach recreators are likely to be impacted by different scenarios of resource change.