On the Theoretical Valuation of Marginal Business Travel Time Savings



On the Theoretical Valuation of Marginal Business Travel Time Savings

Authors

A Karlstrom, Royal Institute of Technology, SE; J Eliasson, A Levander, WSP, SE

Description

We derive a formula for the value of time savings for business trips, that may be viewed as a modification of the ?wage-plus? approach. We show that the formula?s predictions are confirmed when estimating values of time on two data sets.

Abstract

The purpose of this paper is to theoretically derive a measure of the medium (or long) run social benefit from a marginal travel time saving for longer (at least one day) business trips. In the applied literature, two different approaches have been suggested. In the so-called Hensher approach, a weighted average of the wage-rate and the valuation of leisure time is used. In the so-called wage-plus (or cost-saving approach), the wage rate, plus labour-related overhead, is used. While the weighted average (Hensher) approach is intuitive for valuation of short-run effects, the wage-plus approach as such is theoretically justifiable only under very restrictive assumptions. In this paper we relax a number of these restrictions. In particular, we allow for different marginal productivities at the normal workplace and at the destination. We also explicitly model the monetary travel cost of the business trip and allow that the business trips and commuting trips, as defined, take place on separate days. On the margin, the employee?s working hours are allocated to the business trip destination as long as the marginal benefit exceeds the marginal cost. The derived formula may be viewed as a simple modification of the wage-plus approach, given the assumption that the direct disutility of travel and working (at the normal workplace) is equal. Under these assumptions, the wage-rate is a lower bound for VTTS, and will only be correct if the business trip has the same travel cost in time and money as the normal commuting trip. We also discuss how to find an estimate of the valuation if this simplifying assumption does not hold.

Using stated preference and revealed preference data, we show that the formula?s predictions regarding how the value of time should vary with travel time, travel cost, income etc. are confirmed. For example, the formula predicts that the value of time should increase not only with income, but also with increasing travel time and travel cost. This is confirmed by estimating the value of time on two separate data sets. Intuitively speaking, this is because accepting high travel times and travel costs is a signal of high productivity at the destination ? and hence, the value of a time saving (which can be used to stay longer at the destination of make more trips to it) should be higher. As a contrast, the wage-plus approach only relates the value of time to income (and various overhead costs).

Publisher

Association for European Transport