I am doing an analysis of economic valuation of national park. While constructing an econometric model, I find some difficulties in using travel cost and distance traveled in ITCM. By using both results in multi-co linearity, if I skip any one my R square value is going below 0.5. What should I do?
As I understand travel cost methodology, total travel cost includes a "component" which is based on the distance traveled. This "component" is usually a linear transform of the travel distance, e.g. $2 per kilometer traveled. Total travel cost usually includes the distance traveled "component" as well as other costs such as accommodation costs, meals, equipment, etc. You will therefore always get co-linearity because one value always includes the other.
To stop this co-linearity you must remove the distance traveled "component" from the total travel cost. If you know the linear transform equation simply calculate the distance traveled "component" and subtract it from the total travel cost. You end then have two independent cost variables without co-linearity 1) the distance traveled component cost and 2) other costs unrelated to distance traveled!
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