1 Transport projects are designed chiefly either to accommodate an increasing number of travellers or to reduce journey time. Less frequently, they are designed to increase comfort or convenience of travel.
It is hardly necessary to remark that, if a project does save journey time, the required compensating variation is equal to the largest sum a person is willing to pay in order to save that amount of time. And, indeed, there have been a few interesting but unsophisticated attempts to estimate this willingness-to-pay figure for travel time saved for different income groups. Although further refinements would take account of the element of comfort and reliability, it will be argued in this chapter that, notwithstanding frequent recourse in CBA to arbitrary calculations based on hourly earnings, the value of time saved (or spent) necessarily varies with the context in which time is saved (or spent).
2 It is possible also to put a value onthe time saved from improvements inindus-trial technology. If, for example, the introduction of a new method of producing good x turns out to increase productivity by 50 per cent, which enables a given output to be produced inone-third less thanthe previous time, the valuationof the time that is saved will depend on the output of the good x that is subsequently produced.
Following the above, if, to take one extreme, the workforce employed in producing x is constrained to work the same number of hours for the same pay, out-put will rise by 50 per cent, and the supply curve of x will fall by one-third. In a competitive economy, the resulting increase in consumer surplus – which will thenbe the chief measure of social gain– is likely to be less thanit would be if the output of x that was produced were such that price is equal to marginal cost.
At the other extreme, the whole of the gainfrom increased productivity is appropriated by the workers employed inproducing x by a rise of 50 per cent intheir wages. Inconsequence, the supply curve of x remains unchanged and (ignoring any additional demand for x resulting from the increased income of the x workers, which is apt to be negligible) also the demand curve for x.
QUAH: “CHAP33” — 2007/1/25 — 14:03 — PAGE 180 — #4 Although, more generally, the outcome will be somewhere between these two extremes, we need not trouble to elaborate further because, in CBA, the need to value time saved, when it arises, is almost invariably in connection with improvements in transport or travel, whether by land, sea or air.
3 Inthe attempts to measure the value of time saved, at least under the assumption that there are no changes in comfort, etc., a once-common method was to value anhour saved by a givenpersonas equal to the social value of his (marginal) product.1Thus, if an improvement in public transport had no other effect than that of enabling a man to save exactly one hour from his journey to work each day, this method of valuing time saved would be valid only if (i) our man would accept an offer, if it were made, of working an additional hour at the existing rate of pay, and (ii) the social marginal product of the additional hour worked were a valid measure of the additional social benefit.
While (i) is far from certain, (ii) is certainly not true. For one thing, a part (gen-erally the greater part) of the measured value of the additional hour’s output will be some minimal compensation to our man for the additional work undertaken – which, by definition, does not increase his welfare. This method of valuing time saved cannot therefore be accepted as a proxy for the true value of time saved, namely, the amount a man is willing to pay for the time saved, ignoring any externalities.
4 Although it is indeed correct to value the amount of time saved by the most a personis willing to pay for it, which will therefore vary widely betweenone person and another, we are not to suppose that the saving of time is always a good thing. The tacit assumption that travelling is but an unavoidable disutility, simply a means to reach a destination, is not generally valid.
There can be situations when reducing time is far from being a good thing. In-deed, whena personis willing to pay for additional time, whether intravelling or insome other activity – a prime example being that of the plea of the lover in the once-popular song, ‘Give me five minutes more, only five minutes more . . . inyour arms’. Apart from the joys of a prolonged embrace, however, there canbe many familiar instances when the saving of time is a negative benefit or, put more positively, the availability of more time is a positive benefit.
If a personis ona trainbound for a seaside holiday, some delay at a small railway station that allows him to detrain, to stretch his legs and enjoy the views, might be much welcomed. A summer holiday along the coast of the Costa del Sol that is unexpectedly prolonged for a couple of days is a delay that is more likely to be thought of as a bit of good luck than otherwise. Again, a representative of a firm who is on a business trip may not mind a delay in congenial surroundings, as it is in the firm’s time anyway. He may well enjoy travelling much more than
1 For a good review of the literature onthe value of travel time savings inproject evaluation, see Abelson(2003).
QUAH: “CHAP33” — 2007/1/25 — 14:03 — PAGE 181 — #5 Value of time saved 181 spending time in the office and will always prefer say, crossing the Atlantic by ship rather than by plane. So far as he is concerned, any shortening of his travel time is regarded as a loss.2
5 Turning to those cases which the cost–benefit economist more frequently addresses, those in which any time saved is unambiguously a good, the valua-tion of time saved will obviously vary according to the circumstances. A young mandesperate to be ontime for his first date would be willing to pay a large sum to avoid delay if his car were stuck ina traffic jam.
In more ordinary circumstances, a reduction by, say, a half hour of his daily commuting time would be valued by a person according to the anticipated use to which he would put the spare half hour. He might use some of the extra time available at the gym or jogging. He might stay longer at home in the mornings, extending his breakfast time, reading the newspaper or watching television. The satisfaction he obtains from the way he chooses to spend the additional half hour will, of course, determine the most he is willing to pay for it. (It is not imposs-ible, however, that he preferred the original journey if he travelled by train, there being just about enough time to relax, read the newspaper and perhaps finish the crossword puzzle).3
A more interesting case would be that in which there are enough people, each willing to pay an additional $3,000 several times a year to fly the Atlantic in no more than an hour if the opportunity arose. If this were known, it might prove worthwhile to construct and operate such an aero-engineering phenomenon. Were it to be so, were such flights to take place, we should be able to make a rough calculationof the worth (onaverage) of the saving of five hours of flying time to those who choose regularly to fly on the new supersupersonic plane.
6 Finally, in considering any reduction in an existing delay, the extent of the delay is important. There is obviously some minimum sensible level below which any delay has no perceptible value for society. An investment that would save about ten seconds’ time on a daily journey is not worth having, even if many millions of people ‘benefit’ from it. No one would really care much. Indeed, in a journey that
2 To the corporation who employs him, however, the saving in time might be a gain, but only if the time saved were large enough to enable his presence in the office to add something to profits.
Obviously, a few hours’ saving would be useless in this connection, and it is uncertain whether even a few days would make a difference. Furthermore, even though a saving of the executive’s time can be counted on to increase the corporation’s profit somewhat, the economist engaged in social CBA does not necessarily equate the increased profit with increased social benefit. The increase in profit may well be at the expense of the profits of competitors. Only if the saving in the executive’s time resulted in some additional value of output to the economy as a whole (net of external effects) would it rate as a social benefit. In contrast, the owner of a small business, say a retail shop, who can travel only by closing his shop, or by suffering a reduction in sales, would benefit by the saving of a few daylight hours of travelling.
3 One of our colleagues enjoys reading journal papers by deliberately choosing public transportation over private cars!
QUAH: “CHAP33” — 2007/1/25 — 14:03 — PAGE 182 — #6 currently takes, say, six hours, a ten-minute saving of time is hardly likely to have a perceptible effect on people’s welfare, and there would be a case for ignoring it, irrespective of the number of people involved. In general, it is the proportion of time saved that counts as much as the absolute amount of time saved.4
4 As stated earlier, there are other fairly obvious factors such as comfort to be considered also. Many people will prefer a journey during which they can sit and read quietly to a shorter journey during which they can do neither, or to a shorter journey during which they have to make one or more changes. They may also prefer a means of transport A which arrives punctually to a means of transport B which, although it averages less on the journey, sometimes takes longer than the A transport.
Greater frequency of public transport or a more convenient timetable may be rated more highly than some perceptible saving in existing journey time. Although it appeared some time ago, an excellent article by Tipping (1968) discusses such factors in more detail. For a study that relates the value of automobile travel time with implications, and for congestion and public policy, see Small et al. (2003). Here, the authors use a variant of stated preference models to estimate the value that commuters are willing to pay to save travel time.
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