Productivity foregone corrections of the value of business travel time savings

Abstract

In the current practice of the economic appraisal of transport projects, the value of travel time savings (VTTS) for business trips is derived predominantly from the cost savings approach (CSA) where travel time savings are valued at the marginal product of labour (MPL), defined as the average wage rate plus overhead costs. Specifically, the CSA approach does not require that travel time is unproductive, only that any time saved should be unproductive. This approach has been adopted in Australia by Austroads and Transport for NSW, and internationally by the UK, other European countries and throughout North America. Supported by portable computing and smart phone devices, there is a view that an increasing proportion of business travellers work to some extent while travelling. Furthermore, a proportion of business travel time savings has been used for leisure instead of work on the argument that such savings are in non-income earning time. This paper uses the Hensher Equation developed in the 1970s, which is resurfacing as an appealing alternative valuation method for business travel time savings, to quantify productivity foregone corrections for the loss of productive use of business travel time savings. The purpose of this paper is to translate recent research on the valuation of business travel time savings into practical tools for incorporation in economic appraisal methods.