An important issue in the field of transport economics is the discrepancy between cross-sectional and longitudinal income elasticity of the Value of Travel Time Savings (VTTS). Policy makers and transport planners use the income elasticity of VTTS to calculate future VTTS. A major part of benefits of transport investments is due to travel time savings. Different values used for income elasticity of VTTS leads to different calculations of future benefits, and could affect the result of a cost-benefit analysis. In The Norwegian Value of Time Study income elasticity of VTTS was estimated to be about 0.5. The comparison of estimated VTTS based on 1996 data and 2009 data suggests an income elasticity of about 1.0 (Ramjerdi et al., 1997; Ramjerdi et al., 2010).
The main focus on this thesis is to explore possible explanations for the divergence of cross-sectional and longitudinal income elasticity of VTTS. An econometric model is formulated to estimate income elasticity of VTTS based on data from the Norwegian Value of Time Study. The cross-sectional income elasticity of VTTS is estimated for different segments of data. It is found that cross-sectional income elasticity of VTTS most likely is an increasing function of income. There is also evidence indicating that cross-sectional income elasticity increases with age. Both of these factors could cause cross-sectional and longitudinal income elasticity of VTTS to converge over time. It is suggested that further studies on the subject are needed in order to identify possible solutions to the problem at hand
