Valuing Heritage as A Public Good: An Application of Zonal Travel Cost Method (ZTCM) in Hoi An, Vietnam45315

Valuing Heritage as A Public Good: An Application of Zonal Travel Cost Method ZTCM in Hoi An, Vietnam Bui Dai Dung 1 *, Nguyen An Thinh 1 , Nguyen Thi Vinh Ha 1 , Nguyen Thi Hoa Hanh 1

Valuing Heritage as A Public Good: An Application

of Zonal Travel Cost Method (ZTCM) in Hoi An,

Vietnam

Bui Dai Dung (1) *, Nguyen An Thinh (1) , Nguyen Thi Vinh Ha (1) , Nguyen Thi Hoa Hanh (1)

(1) VNU University of Economics and Business, Vietnam National University, Hanoi, Vietnam

* Correspondence: buidaidung@gmail.com

Abstract

In order to value an object that has no market price (such as heritage), non-market price methods will be used as a main solution, in which the demand curve of the valuated object shall

be built based on reliable data, and the total economic value of such object is measured by the area beneath the demand curve, which is called as the consumer surplus (CS) Literature review shows that almost all of valuation researches for heritages have built demand curves as those of private goods We argue that heritages are high purity public goods A heritage valuation research would yield more accurate results if the demand curve could be built as that of a public good This paper presents arguments of the superiority of the public good demand curve over that of private good in the scope of heritage valuation, and initially applies for Zonal Travel Cost Method (ZTCM) in valuing Hoi An, a World Heritage in Central of Vietnam, to look for evidences of such superiority Evidences show that: (i) The relationship between visits and travel costs could be represented with more accuracy by the public good’s demand curve rather than the private good’s one; (ii) To build the demand curve for a World Heritage (tourists are inhomogeneous), it requires additional techniques

to minimize potential distortions, in which the purchasing power parity ratio (PPP ratio) has been used to adjust inconsistence of actual traveling costs; (iii) The values of Hoi An has been valued at

US $ 3,581,607,970 based on public good’s demand curve, shows 73.85% higher than the value computed based on private goods’ demand curve

Keywords: Heritage valuation; public goods; demand curves; Travel Cost Method (TCM); Zonal

Travel Cost Method (ZTCM)

1 Introduction

A heritage contains values that previous generations created or protected, maintained, and conferred to the next generations It is not only the common property of a particular local community, but also the property of a nation and of human beings in general From time to time, heritages continuously bring about benefits for the economy and the people, and need certain expenses for managing and maintaining to ensure their optimal benefits

In order to avoid the shortage perception or the over-exploitation of heritages, valuation of heritage is responsible for identifying and providing realistic information of its values to policy makers for sustainable protection and exploitation

In order to value a heritage, economists have set up several methods and tools, in which, the vital idea is how to build the demand curve of the valuated object, and then compute the acreage beneath the demand curve which represents the consumer surplus or

the value of the object However, most of present studies approach the valuated object as a private good, in which the key idea is that the demand curve shall be summed up every demanded quantities horizontally

This paper proposes a new approach to heritage valuation, based on a main argument that heritages are public goods The valuation techniques would be changed fundamentally by building the demand curve as that of public goods rather than of the private ones We initially apply this idea in the Zonal Travel Cost Method (ZTCM), and conduct the valuation research for Hoi An, Vietnam

This is a new approach based on normative economics, therefore may lead to controversial issues We sincerely expect scientists and experts to give us constructive comments

1.1 Literature review

* Heritage and total economic values of heritage

According to UNESCO, "Cultural heritage is the legacy of physical artifacts and intangible attributes of a group or society that are inherited from past generations, maintained in the present and bestowed for the benefit of future generations” World heritages are classified into three groups: (i) Cultural heritages; (ii) Natural heritages; and (iii) Mixed heritages Heritages are also classified according to physical and intangible criteria Cultural heritage objects include buildings and historical places, monuments, artifacts, etc They have implications for archeology, architecture, science or technology of a specific culture Intangible cultural heritage is a spiritual product associated with community or individuals, objects and cultural spaces concerned, with historical, cultural and scientific values, kept by memory and words, written, handed down by word of mouth, festivals, food, costumes, etc Thus, the classification in terms of forms and the boundaries

of the values of heritages are only relative The value of a physical cultural heritage includes the value of material artifacts and implies intrinsic intangible cultural value On the other hand, the value of an intangible cultural heritage can also include values of the related artifacts in a certain range

* Total Economic Value of heritage

Researchers have a great consensus on the economic values of heritages, including tangible and intangible values Fairly uniform opinion is that the Total Economic value = Use value + Non-use value (See Figure 1)

Figure 1 Total economic value of heritage

Use value is the value brought about by the consumption of goods or services to satisfy human needs, including values from direct consumption and indirectly enjoyed values Use value = Direct use value + Indirect use value

Non-use value is the value that people assign to economic goods even if they never

or will never use it Non-use values include: Optional value, which is the value that individuals are willing to pay to maintain the property or resource even if there is little or

no possibility that they will actually use it in the future; Existence value, which is a rather controversial type of economic value, reflecting the benefits that people receive when knowing that an existed resource or something of value is in danger of extinction or disappearance in the future; Bequest value, which is the value set for the willingness of individuals to pay for the maintenance or preservation of an asset or resource is that not currently used, to preserve for future generations Non-use value = Option value + Existence value + Bequest value

Based on the theory of total economic value of heritage, the valuation of heritage will

be conducted, including data collection activities, using appropriate analytical tools to estimate value in terms of money in a complete and reliable manner

* Popular valuation methods applicable to heritage

Researchers divided the methods of economic valuation into three basic groups: (i) Market-based valuation method; (ii) Non-market valuation method; and (iii) Benefit transfer method

This article focuses on the Non-market valuation methods, which can also be classified into two sub-groups: (i) Revealed preference methods (RPM); and (ii) Stated preference methods (SPM)

Typical characteristics of the popular valuation methods are summarized in Table 1

Table 1 Description of Economic Valuation Methods

Method

group

Valuation

method

Forest good

or service valued

Value captured

Affected population captured

Benefits

of method

Limitation of methods

Revealed

preference

methods

Market price

Those that are traded in markets, mainly resources (e.g., timber, fuel-wood, cork, non-wood forest products)

Direct and indirect use

Users

Market data available and robust

Limited to market goods and services

Cost-based

Mainly ecological services: soil protection, water protection, climate regulation

Direct and indirect use

Users

Market data available and robust

Can potentially overestimate actual value

Hedonic pricing

Services that contribute to the quality of attributes of a certain market good, e.g air quality, landscape aesthetics, noise reduction

Direct and indirect use

Users

Based on market data

Very data intensive and limited mainly to data related

to property

Travel cost

All ecosystem services that contribute to recreational activities

Direct and indirect use

Users

Based on observed behavior

Limited to recreation and problematic for multiple destination trips

Stated

preference

method

Contingent

valuation

All goods and services

Use and non-use

Users and non-users

Able to capture all use and

non-Potential bias

in response, hypothetical market (not observed

use values

behavior), resource intensive

Choice experiment

All goods and services

Use and non-use

Users and non-users

Able to capture all use and non-use values

Potential bias

in response, hypothetical market (not observed behavior), resource intensive (Source: http://www.fao.org/3/a-i6117e.pdf, Jun 8th 2019)

1.2 Heritage is a special form of public goods

* Characteristics of heritage public goods

According to the consumption nature, some goods can be used separately, while some other can be used jointly We can divide the world of goods and services into two categories: private goods and public goods based on the two characteristics of rivalry and excludability (See Figure 2) Public goods are weak in rivalry and difficulty in excludability, and the non-rival and non-excludability goods are located at the extreme point of purity public good On the opposite side, private goods are strong in rivalry and easy in excludability, and the complete rival and complete excludability goods are located at the extreme point of purity private good The distance between these two extremes reflects goods that have decreasing public good purity, or vice versa, increasing private good purity

Figure 2: Public goods vs private goods (Source: Bui, 2016)

Public goods are different to private ones by following characteristics:

First, competitiveness is low in terms of consumption When goods have this feature, the benefits of consumers do not compete or conflict with each other If a person has used

or consumed a good, this event does not affect other people's ability or actual consumption

of the good

Second, low level of excludability in terms of distributions This means that owners

of the goods, even if desired, are not capable or very expensive to exclude someone from using or consuming the goods once it is available in the market

Third, a public good is provided on market at once with the entire cost right at the beginning (excluding maintenance fee) In this case, the marginal cost of public goods for one more consumer is zero (or negligible) The marginal cost curve of public goods goes from the original total price and runs parallel to the horizontal axis on graph

Fourth, for low purity public goods, the supply curve is fixed and parallel to the vertical axis Congestion can occur when demand exceeds the maximum supply volume of public goods In this case, fees should be applied to limit consumers to below the maximum supply Therefore, congestible public goods should be provided with a reasonable fee to achieve optimal overall welfare

Based on the above characteristics of public good concepts and the rationale for the total economic value of heritages, it can be seen that heritage is a type of congestible public goods Let us consider each type of values of heritages as follows:

(i) Direct use value of heritage can satisfy the needs for cultural enjoying of a large number of people at a time with low rivalry and excludability Thus, the direct use value of heritage is a type of high purity public goods

(ii) Indirect use value of heritage is beneficial to those who have never used it or will never use it Option value, Existence value, and Bequest value of a heritage is nearly non-rival and non-excludable Thus, the indirect use value of heritage is a rather high purity public goods

In short, heritage is a special form of public goods, in which the indirect use value is pure public goods; the direct use value is a less pure form of public goods, with congestible feature The direct use value needs careful consideration in identifying the optimal exploitation point

* Demand curves of heritage as a public good

The demand curve for public goods is completely different from private ones First

of all, it should be emphasized that private goods are provided and demanded with unlimited quantities

Figure 3 Demand curves for private goods

The demand curve of a private good is identified by horizontally sum up demand quantities at each price level: P = P1 = P2; Q = Q1 + Q2

In contrast, public goods are provided at a limited quantity for the whole society The price of a public good is the aggregation of all prices that each individual in society is willing to pay for a certain amount of provided good

Figure 4 Demand curves for public goods

The rule to determine the market demand curve of a public good is to accumulate vertically the total prices that all individuals pay for a fixed volume of a public good: P = P1 + P2; Q = Q1 = Q2

Since heritage is a non-pure public good with a finite amount of supply at a specific time, congestion may occur if the total supply of heritage public goods is Q1 Fee to avoid congestion is OF No congestion would occurs if the total supply of heritage public goods is Q2 (See Figure 5)

Figure 5 Heritage public goods and congestion potential

3 Methodology

3.1 Zonal Travel Cost Method (ZTCM)

TCM (travel cost method) was first introduced by the economist Hotelling (1947) and was further developed by the economists Clawson and Knetsch (1966) To date, TCM is widely applied, especially to valuate the direct and indirect use values for landscapes and entertainment venues, thereby determining the value of these places The value of a tourism site is defined based on arguments that an individual will spend an amount of money equivalent to the value of the place they visit The value of that site is indicated by: entrance ticket fee, round transportation costs, opportunity cost of travel time, opportunity cost of stay time, etc

There are three approaches to TCM: Zonal TCM, Individual TCM, and Random Utility TCM In the following, the article focuses on zonal TCM and individual TCM

ZTCM has a single approach, mainly using secondary data, with some simple data collected from visitors and other statistical data Zonal TCM is performed by following these steps:

i Determine the zones around the tourist point/site by concentric circles or administrative/geographic boundaries The longer the distance between regions, the higher the travel cost

ii Gather information on number of visits from each zone to the visiting site in one year and some other data such as income, gender, age, education, etc

iii Calculate the ratio of visits over 1,000 residents in each zone

iv Calculate the average cost of one round trip to the tourist site for each zone, including round transportation fees, cost of time, etc

v Determine the marginal benefit coefficient by regressing the number of visits/1000 residents with the average cost from each zone

vi Build the demand function from the marginal benefit coefficient with the starting point is zero travel cost (assumed) corresponding to total number of visitors in the studied year

vii Calculate the total value of the tourist site, which is the consumer surplus, from the newly established demand curve

3.2 Limitations of recently applied travel cost method

The limitations of the travel cost method have been pointed out by many researchers

as follows:

1 For those who like to travel, travelling time is not a cost but a benefit In this case, the cost of time should be deducted from travel cost, which means that the value of the entertainment area is overestimated

2 Multiple-destination journey: if an individual visits several places on the same day but is only interviewed by the TCM method for one place, the analysts will incorrectly allocate the transportation cost

3 Tourists don't have to spend money: the TCM method ignores visitors who live very close to the entertainment area, they can walk there with no or very low cost but they can highly appreciate the entertainment area

4 The assumption of ZTCM is that the regional population is homogenous In fact, the diversity of interests and affordability of individuals in an area is no less than diversity

in the global level

In addition to the above limitations, ZTCM research practice also reveals other basic limitations as follows:

5 The basic idea of ZTCM in zoning (according to the distance from the original place of visitors to the tourist site), implies that the longer the distance, the higher the travel cost Practice shows that this idea is not reasonable because the actual expenditures of visitors from the same zone are very different, and the average costs of visitors from farther zones are sometimes lower than the average costs of closer zones This fact makes it difficult

to establish a demand curve

6 ZTCM has not taken into account the difference in purchasing power of visitor groups from different countries The economic theory indicates that a dollar of a person in low-income country is worth more than one dollar of an individual in a rich country For international-level tourism expenditure, if this problem is not addressed, it is likely that the calculation results have a large error So, this assumption is not convincing enough for division of visitors by zones All visitors should face the same base for calculation of travel expenses

Tourists may travel to many places in one trip The diversity of the number of destinations and the length of stay at each place is a noise that makes it difficult to determine the travel cost of a specific destination

Figure 6: Setting up the ZTCM demand curve (Source: ZTCM Guide of Aberystwyth University,

UK http://www cbabuilder.co.uk/Home.html)

Many people have a criteria for selecting a tourist destination that it is not the place they have been to, since time and budget for tourism is limited, while the need to expand their knowledge to new places is a high priority This is even more interesting in the global context, when the costs for a far trip and a relatively far one have no significant difference,

as the ticketing time makes transportation costs seriously distorted Moreover, the low cost

of living in newly discovered tourist sites also distorts the principle of valuing travel costs

by distance

Another major limitation of ZTCM is to accept the number of actual visitors at a time

or in a short period of time, there is no basis to criticize the situation or the risk of congestion,

or to indicate the optimal number of tourists for the area

4 Results

4.1 Valuing heritage using traditional ZTCM to serve as a reference

As a world heritage site, visitors to Hoi An are divided into 6 zones, including: Zone 0: domestic; Zone 1: Asia; Zone 2: Europe; Zone 3: Oceania; Zone 4: North America; and Zone 5: The remaining regions

The ratio of visits per 1000 residents and the average cost per trip to the tourist site for each zone, including transportation cost (round trip), the cost of time are calculation with the following results (Table 2):

Table 2: Zoning tourists to Hoi An Zone

No

Name of

Zone

Visits in

2018

Visits/ 1000 residents

Days in Hoi An

Exp./ day USD

Time Opt cost/day, USD

0 Vietnam 253,311 2.65 1.8 43.57 5.38

1 Asia 554,811 0.12 2.1 225.40 69.42

2 Europe 500,013 0.68 2.1 285.21 131.10