Productivity foregone and leisure time corrections of the value of business travel time savings for land passenger transport in Australia

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) in which travel time savings are valued typically at the marginal product of labour (MPL), defined as the average wage rate plus a marginal wage increment to allow for 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, and hence the VTTS should reflect this. Furthermore, evidence suggests that a proportion of business travel time savings is 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 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. Specifically, the aim is to show the overestimation of valuation of business travel time savings applied in project evaluation and to present a case study of a candidate set of corrections for use in Australia.

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