The Value of Time in the Travel Cost Method

Travel costs used in valuing recreational sites often include the value of travel time at around 1/3 of the wage rate.  A recent study suggests the fraction should be higher, for some travellers at least.

Originally posted 3/12/2013.  Re-posted following site reorganisation 21/6/2016.

Suppose researchers seek to estimate the use value of a non-market recreational site using the travel cost method.  They select a model for a trip-generating function in which travel cost is one of the explanatory variables.  Usually they will take travel cost to be the sum of the monetary costs incurred (eg the cost of petrol) and the value of the time taken.  They must then decide what monetary value to place on travel time, and this decision will probably have a large impact on their site valuation.  A study of a coastal wetland site in Louisiana, USA, for example, estimated an annual consumer surplus of \$3.9  million if time were valued at the average wage, but only \$1.3 million if time were valued at 10% of the wage (1).

It is possible, admittedly, to avoid the time value problem by using models in which recreationists maximise utility subject to separate money and time constraints (2).  Such models relate naturally to the economic theory of household behaviour, and can take account of differences in labour market circumstances, such as whether individuals work fixed hours for a fixed income or have flexibility to vary their hours and income.  However, this approach is more complex, requires collection of additional data, and is unlikely to be practicable when data limitations or other considerations lead researchers to adopt the aggregate (zonal) form of the travel cost method.

An old but still influential paper by Cesario drew on US and UK studies by transport planners which estimated the value of time by studying the behaviour of travellers when alternative modes of travel were available.  Suppose for example that mode A at 60 mph costs £0.2 per mile while mode B at 40 mph costs £0.1 per mile.  Then a journey of 240 miles by mode A takes 4 hours at a cost of £48, and by mode B takes 6 hours at a cost of £24.  If a traveller opts for mode A, saving 2 hours’ time but costing £24 more, this suggests that his value of time is at least £12 per hour.  Cesario concluded that the average value of non-work travel time was between 25% and 50% of the wage rate, but that even for one person the value of time may vary with the purpose and length of the journey and other factors (3).

A recent study by Fezzi, Bateman and Ferrini suggests a much higher range for  the value of individuals’ time: between less than 50% and more than 100% of their wage rate (4).  It focused on travellers to beaches on the Italian Riviera whose journeys offered a choice between toll highways and open-access roads, the former being faster but subject to toll fees.  Thus an advantage of the study was that it related specifically to travel to recreational sites, rather than generally to non-work travel.  It also used Monte Carlo analysis to evaluate alternative assumptions about the value of time for use when individual data was not available.  The best assumption was identified as 75% of the average wage rate, while an assumption of 1/3 of the wage rate (as commonly used following Cesario) was shown to result in downwardly biased site valuations (5).

The study by Fezzi et al is in many ways well designed.  However, it is unclear to what extent its conclusions are generalisable to different sites and different groups of visitors.  One point is that the study, by its very design, focuses on car-users.  Perhaps those who use a car tend to place a higher value on their time than those who do not, even if the effect of income is controlled for.  Another is that the circumstances in which the travellers chose between toll highways and open-access roads may not be representative of those faced by the generality of car-using recreationists.  The journey times faced by travellers if opting for the fastest non-toll routes showed a mean of about 4 hours with a maximum of over 12 hours (6).  Of the sampled visitors, 34% were making day trips and 66% staying for longer holidays (7).  It appears possible therefore that a significant proportion of the sampled visitors were in one or other of the following circumstances in which their value of time might be expected to be above its average level:

1. A group wishes to visit a site on a day trip, to avoid the expense of an overnight stay at the site or impingement on their work or other plans for the following day.  However, the distance they have to travel is such that it is difficult, using open-access roads, to complete their trip within one day, leaving and returning at acceptable times and allowing sufficient on-site time for the trip to be worthwhile.
2. A group has arranged a longer holiday at a site, but wishes to complete their journey to the site in a single day to avoid the expense of an overnight stay on the way, and similarly for their return journey.  However, the distance is such that it is difficult, using open-access roads, to complete the one-way journey in a single day, starting and finishing at acceptable times.

Under either of these scenarios there might be other factors adding to the pressure to choose a faster route: allowing a driver time for breaks within a long journey; a preference for not driving on rural roads in the dark; minimising the boredom of children in the back seat; and so on.  Suppose a group’s normal value of leisure time, revealed by the choices they make on trips when the length of the day is not a constraint, is such that they would normally avoid toll highways when an open-access road is available.  Nevertheless, in the circumstances described they will probably choose the toll highway.  If that choice is then viewed in isolation, without regard to the circumstances prompting it, and a conclusion is drawn regarding the group’s normal value of time, it is likely that the result will be upwardly biased.

The study by Fezzi et al is a useful contribution to a debate that is far from resolved.  It provides some justification for valuing time at more than the common 1/3 of the wage rate for recreational visits involving car journeys of several hours.  However, it would be wrong to infer from this study that travel time should be valued at 75% of the wage rate for all kinds of recreational sites and visitors.

Notes and References

1.  Farber S (1988)  The value of coastal wetlands for recreation: an application of travel cost and contingent valuation methodologies  Journal of Environmental Management  26 p 305

2.  See for example Larson D & Shaikh S (2001)  Empirical Specification Requirements for Two-Constraint Models of recreation Choice  American Journal of Agricultural Economics 83(2)  pp 429-430

3.  Cesario F (1967)  Value of Time in Recreation Benefit Studies  Land Economics 52(1) p 37

4. Fezzi C, Bateman I & Ferrini S (Authors’ Accepted Manuscript 2013)  Using Revealed Preferences to Estimate the Value of Travel Time to Recreation Sites  Journal of Environmental Economics and Management  p 17   http://www.sciencedirect.com/science/article/pii/S0095069613000880

5.  Fezzi et al, as above pp 20-1

6.  Fezzi et al, as above p 26 Table 1

7.  Fezzi et al, as above p 9