Value of time
Encyclopedia
In transport economics
, the value of time is the opportunity cost
of the time
that a traveller spends on his/her journey. In essence, this makes it the amount that a traveller would be willing to pay in order to save time, or the amount they would accept as compensation
for lost time.
One of the main justifications for transport improvements is the amount of time that travellers will save. Using a set of values of time, the economic benefits of a transport project can be quantified in order to compare them to the costs (thus forming the basis of cost-benefit analysis
). In particular, savings (or, for that matter, increases) in travel time form part of the change in consumer surplus for a transport project.
Values of time are used to calculate the non-monetary costs incurred as part of a journey, so that the generalised cost
of the journey (a combination of both monetary and non-monetary costs) can be calculated.
The value of time varies considerably from person to person and depends upon the purpose of the journey, but can generally be divided into two sets of valuations: working time and non-working time. This division is appropriate because the value of working time (i.e. time spent travelling in the course of work) is calculated differently from the value of non-working time (i.e. time spent travelling outside work).
For example, if a worker on a salary of £20 per hour travels to a meeting, the value of time in that case is £20 per hour, because that is the amount the employer would be willing to pay to reduce travel time (as travel time can be considered to be "wasted", i.e. not spent working).
In practice, time spent travelling on certain mode
s (especially train
, but also bus and car passengers) can sometimes be used to carry out some work, while time spent using certain other modes (especially car
drivers, cyclist and walkers) cannot be used to carry out work. This means the value of travel time (and thus the value of travel time reductions) for modes where the employee could carry on doing some work is lower for employees already using any such mode. Conversely the value of travel time reductions for such modes for employees currently using a mode that does not allow carry out work (and who would switch mode) is larger.
The UK Department for Transport
calculates average values of time for travel on various modes of transport so that these values can be used to appraise transport projects as part of its New Approach to Appraisal
http://www.webtag.org.uk/webdocuments/3_Expert/5_Economy_Objective/3.5.6.htm. Some examples are given below in 2002 prices:
∗ Skewed by London
wages
or stated preference analysis techniques, where the real or hypothetical choices of travellers between faster, more expensive modes and slower, cheaper modes can be examined.
For example, if a traveller has a choice between a coach which takes six hours and costs £10, or a train which takes four hours and costs £30, we can deduce that if the traveller chooses the train, their value of time is £10 per hour or more (because they are willing to spend at least £20 to save two hours' travel time).
The difficulty in narrowing down the actual value of time from a pair of choices means that hypothetical situations are generally used (the stated preference technique) to deduce values of time.
The value of non-working time is linked strongly to utility theory.
Transport economics
Transport economics is a branch of economics that deals with the allocation of resources within the transport sector and has strong linkages with civil engineering. Transport economics differs from some other branches of economics in that the assumption of a spaceless, instantaneous economy does...
, the value of time is the opportunity cost
Opportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
of the time
Time
Time is a part of the measuring system used to sequence events, to compare the durations of events and the intervals between them, and to quantify rates of change such as the motions of objects....
that a traveller spends on his/her journey. In essence, this makes it the amount that a traveller would be willing to pay in order to save time, or the amount they would accept as compensation
Payment
A payment is the transfer of wealth from one party to another. A payment is usually made in exchange for the provision of goods, services or both, or to fulfill a legal obligation....
for lost time.
One of the main justifications for transport improvements is the amount of time that travellers will save. Using a set of values of time, the economic benefits of a transport project can be quantified in order to compare them to the costs (thus forming the basis of cost-benefit analysis
Cost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
). In particular, savings (or, for that matter, increases) in travel time form part of the change in consumer surplus for a transport project.
Values of time are used to calculate the non-monetary costs incurred as part of a journey, so that the generalised cost
Generalised cost
In transport economics, the generalized cost is the sum of the monetary and non-monetary costs of a journey.Monetary costs might include a fare on a public transport journey, or the costs of fuel, wear and tear and any parking charge, toll or congestion charge on a car journey.Non-monetary costs...
of the journey (a combination of both monetary and non-monetary costs) can be calculated.
The value of time varies considerably from person to person and depends upon the purpose of the journey, but can generally be divided into two sets of valuations: working time and non-working time. This division is appropriate because the value of working time (i.e. time spent travelling in the course of work) is calculated differently from the value of non-working time (i.e. time spent travelling outside work).
Working time
Working time is subject to the forces of the labour market, and can thus be valued in a relatively straightforward manner. The value of working time is the opportunity cost of that time to the employer, which is generally equivalent to the wages of the worker.For example, if a worker on a salary of £20 per hour travels to a meeting, the value of time in that case is £20 per hour, because that is the amount the employer would be willing to pay to reduce travel time (as travel time can be considered to be "wasted", i.e. not spent working).
In practice, time spent travelling on certain mode
Mode of transport
Mode of transport is a term used to distinguish substantially different ways to perform transport. The most dominant modes of transport are aviation, land transport, which includes rail, road and off-road transport, and ship transport...
s (especially train
Train
A train is a connected series of vehicles for rail transport that move along a track to transport cargo or passengers from one place to another place. The track usually consists of two rails, but might also be a monorail or maglev guideway.Propulsion for the train is provided by a separate...
, but also bus and car passengers) can sometimes be used to carry out some work, while time spent using certain other modes (especially car
Čar
Čar is a village in the municipality of Bujanovac, Serbia. According to the 2002 census, the town has a population of 296 people.-References:...
drivers, cyclist and walkers) cannot be used to carry out work. This means the value of travel time (and thus the value of travel time reductions) for modes where the employee could carry on doing some work is lower for employees already using any such mode. Conversely the value of travel time reductions for such modes for employees currently using a mode that does not allow carry out work (and who would switch mode) is larger.
The UK Department for Transport
Department for Transport
In the United Kingdom, the Department for Transport is the government department responsible for the English transport network and a limited number of transport matters in Scotland, Wales and Northern Ireland which are not devolved...
calculates average values of time for travel on various modes of transport so that these values can be used to appraise transport projects as part of its New Approach to Appraisal
New Approach to Appraisal
The New Approach to Appraisal was the name given to a multi-criteria decision framework used to appraise transport projects and proposals in the United Kingdom...
http://www.webtag.org.uk/webdocuments/3_Expert/5_Economy_Objective/3.5.6.htm. Some examples are given below in 2002 prices:
- Car drivers: £26.43 per hour
- Car passengers: £18.94 per hour
- BusBusA bus is a road vehicle designed to carry passengers. Buses can have a capacity as high as 300 passengers. The most common type of bus is the single-decker bus, with larger loads carried by double-decker buses and articulated buses, and smaller loads carried by midibuses and minibuses; coaches are...
passengers: £20.22 per hour - RailRail transportRail transport is a means of conveyance of passengers and goods by way of wheeled vehicles running on rail tracks. In contrast to road transport, where vehicles merely run on a prepared surface, rail vehicles are also directionally guided by the tracks they run on...
passengers: £36.96 per hour* - UndergroundLondon UndergroundThe London Underground is a rapid transit system serving a large part of Greater London and some parts of Buckinghamshire, Hertfordshire and Essex in England...
passengers: £35.95 per hour* - WalkersPedestrianA pedestrian is a person traveling on foot, whether walking or running. In some communities, those traveling using roller skates or skateboards are also considered to be pedestrians. In modern times, the term mostly refers to someone walking on a road or footpath, but this was not the case...
: £29.64 per hour - Cyclists: £17.00 per hour
∗ Skewed by London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
wages
Non working time
This is time spent outside work, which might include journeys to and from work and leisure journeys. Since this time is not valued in a market, it can only be estimated from revealed preferenceRevealed preference
Revealed preference theory, pioneered by American economist Paul Samuelson, is a method by which it is possible to discern the best possible option on the basis of consumer behavior. Essentially, this means that the preferences of consumers can be revealed by their purchasing habits...
or stated preference analysis techniques, where the real or hypothetical choices of travellers between faster, more expensive modes and slower, cheaper modes can be examined.
For example, if a traveller has a choice between a coach which takes six hours and costs £10, or a train which takes four hours and costs £30, we can deduce that if the traveller chooses the train, their value of time is £10 per hour or more (because they are willing to spend at least £20 to save two hours' travel time).
The difficulty in narrowing down the actual value of time from a pair of choices means that hypothetical situations are generally used (the stated preference technique) to deduce values of time.
The value of non-working time is linked strongly to utility theory.
External links
- Values of time and operating costs - UK Department for Transport WebTAG (Web Transport Analysis Guidance)
- Value of travel time savings in the UK: Summary Report - DfT-commissioned report by PJ Mackie et al., January 2003.
- Value of travel time savings in the UK: Full Report - DfT-commissioned report by PJ Mackie et al., January 2003.
See also
- Generalised costGeneralised costIn transport economics, the generalized cost is the sum of the monetary and non-monetary costs of a journey.Monetary costs might include a fare on a public transport journey, or the costs of fuel, wear and tear and any parking charge, toll or congestion charge on a car journey.Non-monetary costs...
- Stated preference
- Revealed preferenceRevealed preferenceRevealed preference theory, pioneered by American economist Paul Samuelson, is a method by which it is possible to discern the best possible option on the basis of consumer behavior. Essentially, this means that the preferences of consumers can be revealed by their purchasing habits...
- Utility theory