Investigating the distribution of the value of travel time savings

The distribution of the value of travel time savings (VTTS) is investigated employing various nonparametric techniques on a large, high quality data set. When background variables are not included in the model it is found that the right 13% tail of the distribution is not observed and hence the mean VTTS cannot be evaluated. This conclusion changes when background variables are introduced into a semiparametric model. A partially constrained Johnson SB distribution allowing evaluation of the mean VTTS is accepted against the nonparametric alternative and is preferred among 16 candidates for parametric VTTS distributions. The resulting mean VTTS is plausible but three times larger than the mean VTTS evaluated from a simple logit model and half as big as that arising from a model assuming a lognormal distribution for the VTTS. Such findings indicate the importance of properly accounting for the distribution when estimating the mean VTTS. The present findings may be used to guide the choice of mixing distribution in a mixed logit model.value of travel time savings, time, transport, VTTS, distribution, nonparametric, semiparametric, Klein-Spady, Zheng, Johnson SB, lognormal

SPECIFICATION OF A MODEL TO MEASURE - THE VALUE OF TRAVEL TIME SAVINGS FROM BINOMIAL DATA

This paper develops a semiparametric methodology for the evaluation of the distribution of the value of travel time savings (VTTS) from binary choice data. Fosgerau (2004) deals with the case of just one time component. This paper extends to the case of several time components. The methodology is applied to a recent large dataset of about 2200 car drivers who undertook a series of stated choice experiments. The VTTS is a fundamental concept in transport economics, being the main yardstick against which transport investments are measured. However, the methodology presented is generally applicable to evaluation of willingness to pay from binary choice data. Current standard-of-practice methodology applies a mixing distribution to a binary choice model in order to take account of individual heterogeneity. While this is definitely progress, there remains the problem of deciding which mixing distribution to apply. This problem is avoided here by using a nonparametric distribution. For prediction of choices, the choice of mixing distribution may matter less but it is absolutely crucial for evaluating willingness to pay. Even so, it is rare to see a justification for the choice of mixing distribution. The paper tests a range of parametric distributions against the semiparametric alternative.

Unit income elasticity of the value of travel time savings

The paper presents an analysis of the income elasticity of the value of travel time savings (VTTS). It expands on previous micro-econometric estimates of the VTTS on binary choice experimental data by accounting for income taxes, for the dependence of trip length on income and for the stochastic distribution of the VTTS using semiparametric methods. Previous empirical estimates of the elasticity are around 0.6 while in practice i.a. Denmark and the UK (until 2004) apply a unit income elasticity for forecasting the future VTTS in economic evaluations of transport projects. This discrepancy may be resolved as shown in the paper.Willingness to pay, value of time, semiparametric, travel, transport

Using nonparametrics to specify a model to measure the value of travel time

Using a range of nonparametric methods, the paper examines the specification of a model to evaluate the willingness-to-pay (WTP) for travel time changes from binomial choice data from a simple time-cost trading experiment. The analysis favours a model with random WTP as the only source of randomness over a model with fixed WTP which is linear in time and cost and has an additive random error term. Results further indicate that the distribution of log WTP can be described as a sum of a linear index fixing the location of the log WTP distribution and an independent random variable representing unobserved heterogeneity. This formulation is useful for parametric modelling. The index indicates that the WTP varies systematically with income and other individual characteristics. The WTP varies also with the time difference presented in the experiment which is in contradiction of standard utility theory.Willingness-to-pay; WTP; value of time; nonparametric; semiparametric; local logit

Congestion costs in bottleneck equilibrium with stochastic capacity and demand

I analyse congestion costs in the Vickrey bottleneck model of a congestible facility with a peak load in demand. The shape of the peak is endogenous, being the sum of individual scheduling decisions. Capacity and demand are random, which introduces uncertainty into the individual scheduling choices. These are essential features of actual peak loads. Based on work by Arnott, de Palma and Lindsey, I derive the expected marginal and total congestion costs and compare to the case with fixed capacity and demand. Using stylised values for scheduling costs relative to the value of time, I find that randomness of capacity and demand increases congestions cost by up to 50 percent relative to the deterministic case. The bound is general for any distribution of random capacity and demand.Bottleneck model; Scheduling; Reliability; Congestion

SPECIFICATION OF A MODEL TO MEASURE THE VALUE OF TRAVEL TIME SAVINGS FROM BINOMIAL DATA

Using nonparametric methods, the paper examines the specification of a model to evaluate the distribution of willingness-to-pay (WTP) for travel time savings from binomial choice data from a simple time-cost trading experiment involving four public transport modes. A formulation in preference space in terms of constant marginal utilities is rejected in favor of a formulation in log(WTP) space for each mode. Results further indicate that the log(WTP) distribution can be decomposed into an independent random variable and a linear index shifting the location of the log(WTP) distribution, which is useful for parametric modeling. The index strongly indicates that small time savings are valued less than large time savings for all four modes in this experimental choice situation. The sign for journey duration varies significantly between modes, which could be due to self-selection into modes.Willingness-to-pay, WTP, value of travel time savings, nonparametric, semiparametric, local logit

Hedonic preferences, symmetric loss aversion and the willingness to pay-willingness to accept gap

The results in this paper are relevant for the application of valuation studies in cost-benefit analysis in the presence of the willingness to pay - willingness to accept gap. We consider a consumer who makes choices based on choice preferences exhibiting reference-dependence and loss aversion. Choice preferences are related to underlying hedonic preferences through the marginal rates of substitution (MRS) at the reference. Our issue is the identification of hedonic preferences relevant to welfare economic analysis. We show that the hedonic MRS is identified from reference-dependent choices if loss aversion exhibits a certain symmetry. Moreover, we show that this symmetry is rational in the sense that it leads to maximal expected hedonic utility when choices are made under reference-dependent choice preferences.Behavioral public economics; valuation of non-market goods; prospect theory; loss aversion

Speed and income

The relationship between speed and income is established in a micro- economic model focusing on the trade-off between travel time and the risk of receiving a penalty for exceeding the speed limit. This is used to determine when a rational driver will choose to exceed the speed limit. The relationship between speed and income is found again in the empirical analysis of a cross-sectional dataset comprising 60.000 observations of car trips. This is utilised to perform regressions of speed on income, distance travelled and a number of controls. The results are clearly significant and indicate an average income elasticity of speed of 0.03; it is smaller at short distances and about twice as large at the longest distance investigated of 200 km.Speed, income

The value of reliability

We derive the value of reliability in the scheduling of an activity of random duration, such as travel under congested conditions. We show that the minimal expected cost is linear in the mean and standard deviation of duration, regardless of the form of the standardized distribution of durations. This insight provides a unification of the scheduling model and models that include the standard deviation of duration directly as an argument in the cost or utility function. The results generalize approximately to the case where the mean and standard deviation of duration depend on the starting time. Empirical illustration is provided.

Neoclassical versus frontier production models? Testing for the skewness of regression residuals

The empirical literature on production and cost functions is divided into two strands: 1) the neoclassical approach that concentrates on model parameters, 2) the frontier approach that decomposes the disturbance term to a symmetric noise term and a positively skewed inefficiency term. We propose a theoretical justification for the skewness of the inefficiency term, arguing that this skewness is the key testable hypothesis of the frontier approach. We propose to test the regression residuals for skewness to distinguish the two competing approaches. Our test builds directly upon the asymmetry of regression residuals and does not require any prior distributional assumptions.Firms and production; Frontier estimation; Hypotheses testing; Production function; Productive efficiency analysis