Small Time Savings, Loss Aversion and Transport Cost-Benefit Analysis



Small Time Savings, Loss Aversion and Transport Cost-Benefit Analysis

Authors

Fatai Yakeen, Lagos State University,Lagos Nigeria, James Laird, University of Leeds

Description

This paper discusses the issue of treatment of small time savings in appraisal. It was observed that correct and proper treatment of small time savings is key to robustness of Cost Benefit Analysis

Abstract

This paper examines the treatment of small time savings in appraisal of transport projects. Small time savings which constitutes about fifty percent (50%) of total travel time savings has been a subject of controversy and debate among researchers especially the advocates of Constant Unit Value (CUV) and the proponents of Discounted Unit Value (DUV) approaches.
We examine the use of concept of loss aversion as explanation of the variation of value of travel time savings (VTTS) by sign and size. Furthermore, we explore the impact of loss aversion on scheme benefits, worth and ranking.
We calculate the value of travel time savings using the Constant Unit Value (CUV) and the Discounted Unit Value (DUV) functions. Thereafter, we estimate the user benefit using the rule of half.
A review is made of evidences in literature on loss aversion value as well as the threshold for small time savings above which time savings are regarded as ‘non small’.
We use synthetic data (time savings generated from normal and uniform distribution) and case study data (time savings from major inter urban road schemes)
The paper concludes that treatment of small time savings (CUV or DUV) have impact on scheme value with the user benefits being higher under CUV than DUV. However, the result shows little or minimal effect on scheme ranking. Loss aversion reduces scheme worth.
The lack of consensus among researchers on acceptable threshold for small time savings as well as lack of agreement on loss aversion value weakened the application of the DUV approach. The CUV is therefore recommended due to its simplicity and consistency.
The result of the paper has important policy implications for evaluation of transport projects.

Publisher

Association for European Transport