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The value of time paradox

The value of time paradox. Kees van Goeverden Delft University of Technology. BIVEC-GIBET Research Day 2009. Value of time. Applications: Modelling travel choices. Appraising benefits/costs of time savings/losses. Consequences for policy decisions.

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The value of time paradox

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  1. The value of time paradox Kees van Goeverden Delft University of Technology BIVEC-GIBET Research Day 2009

  2. Value of time Applications: • Modelling travel choices. • Appraising benefits/costs of time savings/losses. Consequences for policy decisions. Paradox in development at increasing prosperity for the second application: • Observed (practice): increase • Hypothesis (theory): decrease

  3. Practice: estimation of VOT

  4. Practice: development of VOT Positive relation with prosperity is observed; assumed income elasticities range from 0.5 to 1.0 Explanation is simple: • Wage rates are directly related to prosperity. • Willingness to pay is influenced by the ability to pay which is related to prosperity.

  5. Practice: relation with prosperity

  6. Theory: hypothetical relation • Starting point: Value of saved time equals the marginal utility that is gained from alternative spending • Two types of spending: - Productive (working time) - Leisure (non-working time)

  7. Productive: the value of working time versus prosperity • Assuming rational consumer behaviour, people will spend money to satisfy their most urgent unsatisfied needs. • This implies a law of diminishing returns in consumer behaviour. • Then the value of working time decreases when prosperity increases.

  8. Production-utility curve

  9. Empirical support for the curve Findings in happiness science, assuming happiness as a proxy for utility: • Decreasing positive impact of prosperity on happiness. • Probably no impact in the prosperous first world countries (curve would be here horizontally). • Indications of a negative impact in most wealthy countries (curve would have a maximum).

  10. Leisure: the value of non-working time versus prosperity • Prosperity provides more and better opportunities for spending leisure time. • VOT might be related to the actual amount of free time; relation with prosperity; - ‘technical’: positive - observed: slightly negative. • TTB: Saved travel time is fully used for lengthening trips. Utility of saved time equals the excess utility of the more distant destination. Relation with prosperity?

  11. Theoretical relation: conclusion • If saved time is used for production, VOT decreases at increasing prosperity • If saved time is used for leisure, the relation between VOT and prosperity is unclear. A negative relation seems more probable than a positive relation. • The overall relation is likely to be negative.

  12. Theory: relation with prosperity

  13. Synthesis: paradox

  14. Discussion • Is the paradox a real conflict or just an ostensible conflict? • Is the argumentation behind the theoretical curve valid? • Which curve represents the ‘real’ value of time? • Have we to worry about using current values of time in assessing time savings or losses?

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