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Abstract
“Preference point” lotteries—under which the probability an individual is drawn increases
with their stock of preference points earned over time by being unsuccessful
in past drawings—are widely used to allocate access to many economically important
natural resources (e.g., big game hunting opportunities). Lotteries form a natural
choice experiment: by observing the opportunities for which an individual applies, the
alternatives not chosen, the associated costs, the probability of winning a permit, etc.,
statistical inferences can be made about how individuals trade off site characteristics
for cost. Knowledge of these trade-offs can then be used to estimate applicants’ willingness
to pay for site quality characteristics and site access. Two key features of
recreationalists’ choices under preference point lottery are (i) forward-looking behavior
(since the odds of winning a permit depend on the accumulated stock of preference
points) and (ii) equilibrium sorting (whereby individuals decide where to apply based
on their expectations of others’ choices and vice versa). We develop a novel revealed
preference method for estimating individuals’ willingness to pay for access to recreational
opportunities allocated by preference point lottery that accounts for these two
features. We apply our model to the case study of black bear hunting in Michigan. We
estimate total willingness to pay for access to a small site to be nearly $150,000.