Scandinavian Working Papers in Economics

Working papers in Transport Economics,
CTS - Centre for Transport Studies Stockholm (KTH and VTI)

No 2017:4: Should values of time be differentiated?

Maria Börjesson () and Jonas Eliasson ()
Additional contact information
Maria Börjesson: KTH, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Jonas Eliasson: KTH, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden

Abstract: This paper discusses to what extent the valuations of travel time savings should be differentiated in applied social cost-benefit analysis. We derive a welfare rule which includes a social cost for monetary redistributions, giving a theoretical underpinning of a situation with a welfare-maximizing government that applies equal weights for all income groups. The welfare rule shows that for projects funded by tax payers, values of time should be differentiated with respect to marginal utilities of time, but not with respect to marginal utilities of income. We stress that to determine the relevant valuations of travel time savings, it is crucial who pays for and benefits from a project in the long run. This point has been somewhat ignored in the literature, but speaks in favour of using the travellers’ actual values of time. We present empirical evidence demonstrating that the variation in values of time, in the dimensions relevant for applied appraisal, primarily stems from differences in the marginal utility of time, due to for instance self-selection and comfort differences.

Keywords: Appraisal; Cost benefit analysis; Equity value of time; Behavioural value of time; Value of time

JEL-codes: R41; R48

21 pages, February 7, 2017

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