e. musso, m. benacchio, c. ferrari - wit press · urban travel time evaluation: an economic...

Urban travel time evaluation: an economic

approach

E. Musso, M. Benacchio, C. FerrariDipartimento di Economia e Metodi QuantitativiUniversita di Genova, Via Vivaldi, 2 - 16126 GenovaE-mail: musso(a),econoniia. unige. it, benacchi(q),ecoriomia. imige. it,ferrari(a),economia. unige. it

Abstract

Among factors affecting the choice of transport mode in urban mobility, a keyrole is played by "non-monetary" components. Travel time has become a crucialvariable to be computed in order to correctly evaluate total (monetary + nonmonetary) travel costs compared with the economic utility of transport.

Starting from some milestones of microeconomic literature on the broaderissue of time value, the paper deals with the specific matter of an economicapproach to travel time perception, estimation and rating in an urban transportcontext.

This assessment process, which crucially affects modal split, is influenced byunavoidable subjectivity due to socio-economic characteristics of travelers (age,average income, kind of employment, behavioral preferences, working vs. non-working time trade off) and to different travel purposes (work, leisure,shopping). An empirical survey based on sample interviews has been carried out,in order to estimate (/) the average time for urban moving (stratified forpassengers attributes) and (//) the perceived value of travel time for any differentclass in order to evaluate individual willingness to pay for reducing travel time.

Data collection and analysis allow to compute a simplified "generalized" costfor urban travel, where time value appears to be by far the most importantelement. As a result, some policy items and suggestions for improving urbantransportation planning and management are finally outlined.

Transactions on the Built Environment vol 41, © 1999 WIT Press, www.witpress.com, ISSN 1743-3509

492 Urban Transport and the Environment for the 21st Century

1. Urban transport and the value of time

Time is a key variable in urban transport. Any transfer of goods or passengersinvolves an amount of monetary costs for purchasing or providing the differentinputs, an amount of time spent in transportation and an amount of other costs,often not quantifiable (like discomfort for passenger transport, or risk ofaccidents, injuries, death, for passengers, or risks of damages or loss of cargo, forgoods [1] ). This brings about a well-known concept of generalized cost (whichis an homogeneous index built for a global and simultaneous measurement of allcosts of mobility [2] ).

On the other side, time is clearly an economic resource, which can beemployed either as an input of production activity (generating profits), or as aconsumption good, generating utility. Thus, time involved in transport activitiescan well be regarded to - like infrastructure or fuel cost - just as an inputemployed in the production function of transport, which in turn can either be partof another production process (like in case of travel-to-work) or be spent in aconsumption activity.

This means that relevant economic problems arise concerning this input: whoare the owners of this input? Who pays for it, and how much? Is there a kind ofmarket for this input, with a value resulting from demand and supply functions?Is it applicable an "opportunity-cost" framework, where the value of timedepends on the opportunity of alternative uses, either in production or inconsumption?

Different techniques apply in assessing the value of time spent in transportactivities. Evaluations significantly differ if transport activities involve goods orpassengers. For the former, the main technique consists in applying a suitableinterest rate to the commercial value of both cargo and vehicle (and also ofinfrastructure employed, if the transport prevents other vehicles from employingit at the same time) for the whole duration of transport [3]. Even if the rationaleis clear, practical problems arise in the assessment of commercial values and inthe choice of interest rates.

In passenger transport - which still remains the main item in urban transport,even if problems of goods distribution are gaining momentum namely for theinner cities - assessing time value is far more complicate.

First, what are the alternative uses of time spent in the transport system? Onecould think of the marginal revenue of working time, but the passenger could bejust not allowed to use the spared time for working. This is the case ofemployees whose working time is fixed by the employers regardless of traveltimes, or any other professional whose working time is determined exogenouslybv rules, laws or social habits, customs and uses. On the other side, anin ependent professional or an artisan can actually choose to use the spared timefor working. In this case, spared time can be turned into a higher income, thusdetermining the willingness-to-pay for a reduction in travel times. The problemto face here is how to assess the marginal productivity of working time, since itdoes vary according to different jobs, workers, countries, times of the day, etc..


Urban Transport and the Environment for the 21st Century 493

Secondly, if the spared time is turned into leisure time (what is a choice forsome workers, but is the usual condition for most of them, as well as for allpeople who don't earn money, like students, unemployed, housemaids, retiredpeople, and so on; i.e. the usual condition for an amount of people ranging from70% to 90% of urban population in most developed countries), the value of timespent in transport, and possibly spared, should be equal to the marginal utility ofleisure time. What is obviously even more subject to vary for different people,places, income, opportunity of consumption, and a number of cultural, and socialfactors.

While recent literature on urban transport economics increasingly stressed (/)the need for reducing costs of managing urban transport system (mainly due tothe dire straits of public finance, with the consequent need for bringing backurban transit to market efficiency) and (ii) the need for reducing environmentalexternalities such as air pollution and noise, little attention is paid to reducing oreven properly assessing the other main element in generalized cost of urbanmobility, that is time employed in transport activities.

This is probably due to difficulties in properly quantifying this value, both interms of quantifying the amount of time and of assessing its value, what requiresthe choice of a suitable "substitution rate" between time and money based onmarginal revenue of working time and marginal utility of (consumptionperformed during) leisure time.

Nevertheless, attempts to (at least) roughly assess this share of generalizedcost of urban transport must be developed, for two reasons:- the "substitution rate" between time and money crucially affects all modal

choices and thus the whole modal split of urban mobility [4]; this means thatthe effectiveness of most urban transport policies, namely those aiming atenhancing the use of transit instead of private car for environmental reasons,is strongly influenced by accuracy of information concerning the actualvalue of this rate, not only for global or average values, but also for differentsocial groups; as a consequence, not only the effectiveness but also theeconomic efficiency of these policies is affected, and the possibility itself ofpursuing them in the long run;

- transport time also has a number of indirect consequences on urbaneconomy [5]; as a part of costs of mobility, it affects production costs aswell as actual prices of goods and services, influences the accessibility toeconomies of urbanization and urban facilities, and by this way influencesland rents in the different part of the city, location patterns within the urbanarea, and beyond given thresholds it can cause a limit to urban growth,(particularly in recent years, as information technologies and otherinnovations allow most medium and small sized cities to enjoy almost thesame economies of urbanization ad bigger cities).

2. The valuation of time in transport economics

The valuation of travel time has been widely investigated by transporteconomists since the 1960s [6]. As travel time represents a non-monetary



component of generalized travel cost, i.e. of user's cost of transport, textbooks(following Button [7]) place this issue within the theory of demand. Unlikeproduction costs, travel time valuation faces (i) the non-homogeneous results ofdifferent surveys, (ii) the objective difficulty for individuals to properly estimatea time value and (Hi) the fact that time savings are normally considered as ameasurement of effectiveness of transport policies.

Leaving aside all (charming) efforts for the evaluation of economic variablesusing time instead of money, as well as the Hager strand's approach [8] todevelop a "temporal geography", this paragraph basicly reviews main economictheory approaches concerning utility functions and their application to thetransport economics theory, namely in the valuation of travel time. The value ofa time unit depends on the utility that individuals may perceive from it. Thenotion of utility is crucial as the demand curve is directly dependent on it.

Neoclassic economists formerly suggested cardinal utility functions based onthe principle of decreasing marginal utility (Gossen's law), what leadsindividuals to buy units of any good until the marginal utility (the utility of thelast unit) is equal to the price. The application of the same concepts to the case oftransport time savings points out some differences from economic theory:individuals may choose alternatives both qualitative and quantitative, based on avector of attributes, rather than on a single one; consumers being subject to adouble constraint of wage and time. Moreover, consumers will pay for furthertime savings until marginal utility is equal to price, but in this case as travel timedecreases leisure time increases and also opportunities for different uses (i.e. ashift of the marginal utility curve) increase. On these assumptions is based thepiooneristic model of De Serpa [9].

After the important contributions of Edgeworth and Pareto, economists needonly the preference order of different alternatives to derive the demand curve ofconsumers. Cardinal utility functions are then replaced by ordinal utilityfunctions. The correspondents of indifference curves of elementarymicroeconomics (resulting from the ordinal utility functions) are, in transporteconomics, time/cost preference curves, that are the investigation tool fordifferent contributions. The former survey of Beesley [10] on Londoncommuters was followed by the model of Quarmby [11] based on the concept oftransport disutility and the time/cost trade off later improved by Dalvi-Lee [12]who adopted the concept of "diversion charge", i.e. the sum that individuals needto move from a transport mode to another.

The third approach is that of Samuelson [13] based on the assumption thatchoices reveal preferences (the so-called revealed preference theory); consumerbehaviour is no longer studied starting from stated preferences patterns to deriveits choices, the approach being just the opposite: individual choices reveal itsbehaviour and eventually its preferences. Houthakker [14] showed that there isno contradiction between this model and those based on ordinal utility functions,rather it is a more refined way to investigate consumers choices.

The adoption of this scheme in transport economics implies some problems.In fact, utility of transport users depends on transport mode characteristics (time,cost, comfort, etc.) and on the final objective of the travel. For example, in



freight transportation, the choice among different transport modes depends onthe consumers preferences regarding goods. In the early seventies someresearchers [15] [16] [17] studied relationships between users' choices and thepurpose of travel.

To this third kind of models also belong all model based on the probability ofchoice, such as the multinomial logit and probit models [18] [19] [20]. In thosemodel a value of time is inferred by looking at changes in the dependent variablewhich result from a unit change in either the time or the cost difference. Discretechoice models represent one of the major contributions offered by transportdisciplines to general economic theory and econometrics.

3. Survey design and results

The need for a sample survey on the value of urban travel time arises from thedifficulties in measuring the subjective aspects in such a process of estimation,based on the value each traveller gives to time, with regard to individualrequirements and socio-economic variables affecting time perception.

A twofold target for the empirical research can be pinpointed:1. to estimate the average time for urban trips by different modalities;2. to evaluate the perceived value of time (within a generalized cost

framework) by different social patterns and travel purposes, in order tooutline different willingness-to-pay for urban transport time reductions, and,consequently, to focus on suitable policy items.

3.1 The questionnairesA stratified sample survey has been designed and carried out for a sample of thepopulation of the city of Genoa. After a recruiting stage, 226 filled inquestionnaires have been collected. Interviews were made with respect of thepopulation mix by category, therefore several categories have been considered:unemployed people (U), housewives (H), retired people (R), students (S),entrepreneurs and professional persons (EP), autonomous workers (A), privateemployees and civil servants (E).

The revealed-preference questionnaire was split into three parts. Part 1included questions regarding personal data (i.e. age, sex, residence, household,present employment or position). In part 2 the respondent was asked to givedetails on travels frequency, purposes, modal choice, monetary cost. Trip goalshave been resumed into three macro-categories: (/) business (work, study); (H)leisure; (Hi) other (e.g. shopping). Roughly (i) cover production activities, while(H) and (Hi) represent consumption activities. The third and final part containedquestions regarding value of time perception and people propensity intime/money substitution.

3.2 Main results on key aspectsThe survey carried out for the city of Genoa provided several interestingoutcomes concerning both usual behaviours of urban transport users and some of



the reasons supporting modal choices. The most interesting conclusions can besummarized by pointing out the following essential elements:• what is the split between monetary and non-monetary costs in value of time

perceiving;• the relationships existing between the perceived value of time and some of

the considered attributes.In table 1 the average time per trip has been related to the categories

previously defined (with the relative distribution amount weighted on the totalpopulation 1996) and to the travel purpose.

Cat.

URHSEPAE

Pop.

79.781143.688145.46960.00017.80236.18689.048

% onpop.13,9%25,1%25,4%10,5%3,1%6,3%15,6%

Travel purposeWork

43304532434032

% ofmoving67%13%6%100%100%100%100%

Leis.

32474230324040

%ofmoving89%79%100%100%82%63%88%

Oth.

44423627264138

%ofmoving63%94%92%90%76%78%76%

Weig.Av.28326.826.028.729.732.432.0

Table 1 - Average daily travel time (min.) by categories and purposes.

Columns 5-7-9 give information on the percentage of those persons of eachcategory performing trips for each specific purpose: U/R/H, for instance, show alow percentage of trips for business purpose. Thus, the average travel timeindicated for each category (columns 4-6-8) refers only to the average time forusual travelers for that purpose (i.e.: for H, the average travel time for businesspurpose of 45 min. refers only to the 6% of the category interviewed). The needfor weighing the "real" travel time for the whole category has been consideredfor computing a generalized cost for urban travel.

Information from table 1 can't be properly explained without looking at themodal choice revealed from questionnaires, as shown in table 2 (last columnreports the weighed average per transport mode).

Mode

On foot

Car/Bike

Bus

Train

No Moving

Purp.Bus.Leis.Oth.Bus.Leis.Oth.Bus.Leis.Oth.Bus.Leis.Oth.Bus.Leis.Oth.

U6%1%4%29%80%40%

_21%6%19%11%2%10%

, 33%11%27%

R0%26%28%3%17%21%10%34%44%0%2%0%87%21%6%

H0%10%14%0%61%38%6%23%34%0%6%6%94%0%8%

S11%11%11%20%47%30%50%30%34%19%12%15%0%0%10%

EP5%6%7%71%74%56%18%1%8%5%1%4%0%18%25%

A6%6%11%70%55%41%18%11%16%6%1%9%0%27%23%

E15%18%20%45%55%42%31%11%10%9%4%4%0%12%24%

Wh.Av.5%14%16%21%50%35%19%21%29%5%4%6%50%11%14%

Table 2 - Modal split



Data collection also displays an interesting comparison between theperceived importance of time and cost in urban mobility for the definedcategories, as shown in table 3.

Cat.URHSEPAEAv.

PerceivedTime importance

High44%28%39%61%67%67%56%44%

Middle50%50%34%17%22%23%28%36%

Low6%22%28%22%11%11%17%19%

PerceivedCost importance

High39%28%44%33%11%22%28%33%

Middle50%39%33%38%44%50%55%41%

Low11%33%22%39%44%28%17%25%

Table 3 - Time vs. cost importance

Some reflections can be briefly pointed out:• Except for category H, time factor results always perceived as much relevant

than cost. A sort of trade off can be outlined: categories which give muchimportance to "time" often consider "cost" as a quite negligible variable(see, for instance EP and A).

• A likely relationship between category profile and the value of timeperceived appears, mostly depending on the need for flexibility in movingand on the greater demand for urban mobility (in terms of number of tripsper day), than on the hypothetical incomes (values for S and U, in fact,sound unexpected).Each interviewed person was asked also to quantify the monetary cost of his

daily average urban move and to estimate the value of 1 hour of his own time.By relating the weighed average value of time to the weighed average time spentin moving (from table 1), a sort of "non monetary" travel cost can be computed.This could be expressed as an "opportunity cost" (probably, although notnecessarily proportional to income) for the travel time otherwise free disposable(in business, leisure or other activities).

In table 4 a simplified generalized cost for urban travelling for the city ofGenoa is therefore obtained by summing monetary and non monetary elements.Due to the high subjectivity of measures involved (depending on peopleperception of cost, time and value of time) the generalized cost can be properlyconsidered as a measure of the global cost (money and time) individuals perceivefor their mobility.

As to the survey results, the global average cost for urban moving is roughlyaffected for almost 80% by non monetary costs (while monetary costs weigh justfor 20%), stressing the already pointed out problem of travel time reducing inurban transport. Therefore, as it is referred to in the following paragraph, policiesaiming at improving the urban transport system as a whole (e.g. balancing thesplit between public and public transport in order to reduce congestion), have totake into account the "critical" value of transport users time perception, and their



implicitly willingness to pay for travel time reducing (benefits from reductionshould be more relevant than the cost for achieving it).

Cat.

URHSEPAE

Weig. Av.

Monetary cost(in Euro)2,8832,3671,5072,1523,4002,9703,2282,410

Non- monetary cost(in Euro)9,3146,7924,9738,85226,24114,64214,9879,266

Generalized cost(in Euro)12,1979,1596,48011,00429,64117,61218,21511,666

Table 4 - Daily generalized cost for urban travel (in Euro)

4. Concluding remarks

The empirical survey - even if it could be improved and refined, namely using abigger sample, and could give different results for different contexts - allowssome conclusion and comments, that we can summarize as follows:- time proves to be a key component of the generalised cost of urban

passenger transport; even if similar surveys can give results somehowdifferent for different cities, namely in less developed countries, themagnitude of the estimated ratio between time cost and monetary cost -ranging from 2.9 for retired people to 7.7 for entrepreneurs and professionalpersons, with a weighed average ratio of 3.9 - indicates that time is by farthe most relevant component of urban transport cost;

- as a consequence, urban transport policies, namely those concerning transit,should focus on an increase of average speeds; while policies focused onpricing (with monetary costs weighing from 11.5% to 25.8%, in average just20.7%, even without considering discomfort and other non monetary costs)are unlikely to be effective, particularly if we consider that price elasticity ofurban transport demand appears to be quite low [21];

- the survey seems to reinforce the assumption that time value is theopportunity cost resulting from possible alternative employment of time;thus, time value is likely to be an increasing function of user's income, notonly for work opportunities possibly resulting from time savings, but alsobecause saved time can provide, for higher incomes, higher utility fromconsumption alternatives;

- consequently, time savings can determine, more than monetary costs, a clearsegmentation between different categories of consumers, and betweenresulting modal choice patterns;

- the possible nature of "inferior good" of urban transit could be properlyrelated to travel time: as income increases, differences in travel time result ingrowing differences in generalised cost, thus causing the shift to a morerapid but more expensive mode.



A conclusion might be that travel time savings - as well as all time savings -affect income but also quality of life. A demand/supply frameworks ensues,where time is an economic good, whose value is given by productivity or utilityof its best possible production or consumption use. Economic literature is likelyto pay a growing attention to time, as it is more and more becoming a scarceresource, since:- its possible uses in final consumption (generating direct utility) dramatically

increase with income growth and technological progress;- decreases occurring in overall working time are quite unbalanced, averaging

jobs where supply is scarce and other where it is largely oversized.In this context, while a sharp debate arises on working time - ranging from

35 to 38 hours per week in most advanced countries - and its possiblereductions, little or no attention is paid on travel time, which attains in big citiesup to 10-15 hours per week.

Future economic and sociological research on quality of urban life willprobably consider leisure time as an indicator of quality of life. And for the samereasons, the scarcity of time with respect to alternative uses, and its consequentnature of economic good, will suggest to include time employment in economicmodelling, as a cost component of production activities, and as a pricecomponent in consumption activities. In such a framework, transport should beconsidered the output of two groups of inputs: those traditionally taken intoaccount, and supplied by the producer of transport service, on one side, andtransport time, supplied by the traveller, on the other side.

References

[1] Grey, A., The generalised cost dilemma, Transportation, 7, 261-280, 1978.[2] Wilson, A.G., Hawkins H.F. & Hill G.J., Wagon D.J., Calibration and

testing of the SELNEC transport model, Regional Studies, 3, 337-350, 1969.For a review, see Button, K.J., Transport Economics, 2™* edition, EdwardElgar, 1993.

[3] For a review of evaluation techniques see Waters, W.G., Values of traveltime savings used in road project evaluation: a cross-country/jurisdictioncomparison, Australian Transport Research Forum, Canberra, Bureau ofTransport and Communications Economics, 1992.

[4] For an up-to-date review see Ortuzar, J. de Dios & Willumsen, L.G.,Modelling Transport, London, John Wiley, 1990.

[5] Most of them have necessarily been ignored in this paper, however.[6] For a review of British evidence see Wardman, M., The Value of Travel

Time, Journal of Transport Economics and Policy, vol. 32, n. 3, 1998[7] Button, K.J., Transport Economics, UK, Aldershot, 1982[8] Hagerstrand, T., The domain of Human Geography, (ed.) RJ. Charley,

London, Methven, 1973[9] De Serpa, A.C., A theory of the economics of time, Economic Journal, vol.

81, n. 324, 1971[lOJBeesley, M.E., The value of time spent in travel, Economica, vol. 32, 1965



[ll]Quarmby, DA., Choice of Travel Mode for the Journey to Work, Journal ofTransport Economics and Policy vol. 1, 1967,

[12]Dalvi, Q & Lee, N., Variations in the value of travel time, ManchesterjcAoo/, 37, 1969

[13] Samuel son, P.A., Consumption theory in terms of Revealed Preferences,Economic XV, 1948

[14]Houthakker, H., Revealed preferences and the utility function, Economica,XVII, 1950

[15]Hensher, D.A. Valuation of commuter Travel Time Savings: An AlternativeProcedure, Modal Choice and the Value of Travel Time, I.G. Heggie (ed.),Oxford, Oxford University Press, 1976

[16]Daly, A.J. & Zachary, S., Commuters' Value of Time, Reading, LocalGovernment Operational Research Unit, Report T55

[17]Kutter, E., A Model for Individual Travel Behaviour, Urban Studies, vol. 5,a 2, 1973

[18]Kanafani, A., Transportation Demand Analysis, New York, McGraw-Hill,1983

[19]Cascetta, E., Teoria e metodi del/'ingegneria dei sistemi di trasportoTorino, UTET, 1998

[20] Cascetta, E., Metodi quantitative per la pianificazione dei sistemi ditrasporto, Padova, Cedam, 1990

[21] For a review of empirical evidence see Button, K.J., Transport Economics,2™* edition, UK, Aldershot, 1993

Sections I and 4 are by E.Musso, Section 2 is by C.Ferrari and Section 3 is byM.Benacchio.


e. musso, m. benacchio, c. ferrari - wit press · urban travel time evaluation: an economic...

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