Valuing the Benefits

The values for travel time savings used in scheme appraisals are derived from a combination of sources. Many countries publish the values to be used as part of their investment appraisal guidance.

Revealed Preferences

“Revealed preferences” is a theory which links consumer preferences to their purchasing behaviour. It assumes that consumers evaluate different options before making their choice. From their choices it is possible to infer the relative value of the options.

For example, in some countries motorists are faced with a decision about whether to use a faster tolled road – or to save money by taking a slower un-tolled alternative. Analysis of these choices can show the extent to which drivers trade-off time savings against payments. Those drivers whose overall journey time is reduced by a relatively small amount, are less likely to use the tolled option than those who can make use of the toll road for a greater proportion of their trip.

The findings from this revealed preference method of valuing time savings need to be interpreted with care – because savings in time are not the only factor that drivers consider in their choice of route. For some, an uncongested journey on a tolled road provides an advantage over a journey on more congested routes – irrespective of any differences in the journey time. For others, the act of paying a toll to use part of the highway is seen as an unnecessary expenditure and one to be avoided.

Market Research Methods

Many of the studies valuing time savings are based on market research methods because of the difficulty of interpreting the results of revealed preference studies and because not all countries have toll roads. A representative sample of drivers is asked a series of questions about how they choose between options which offer:

• various combinations of time savings or longer travel times
• increases or reductions in the monetary cost of a journey

These studies provide evidence of road users’ willingness to pay for time savings – which can then be used in an economic appraisal.

ITS brings improvements in reliability, whether by road or by public transport, and provides transport users with benefits that are additional to any savings in average travel time. For example, some schemes – such as managed motorways – provide overall net benefits because the value of the improvements in reliability offset any disadvantages in terms of increased travel time associated with imposing a speed limit.

Public transport operations generally adhere to a timetable – and passengers are assumed to be aware of this schedule. Unreliability is perceived in terms of late running, or in some case early arrival at the passenger’s destination. Lateness is made up of additional travel time and the inconvenience of the unexpected delay. Typical values for delayed minutes are three times the value of the standard travel time savings.

There is evidence that the inconvenience that road users experience from unreliability varies by the duration of any delay. Short delays cause less inconvenience than longer ones. This weighting of shorter and longer delays is taken into account in the valuation of improvements in reliability. It is calculated using the standard deviation of travel times around their expected duration – and gives more weight to longer delays.

Economists define the Value of a Statistical Life (VSL) as the amount of money society is willing to spend to save a life. The means for assessing this value – and of injury or ill-health – is based largely on market research methods. People are asked about their willingness to pay to change the risks of injury or possible death – with the questions based on realistic choices, such as the purchase of a more expensive car with special safety features.

There is evidence from studies of morbidity that people living in areas which experience high levels of local air pollution suffer more ill-health than others and die younger. The approach used to value a statistical life in a road accident is modified to reflect the reduction in the number of expected healthy life years caused by traffic related air pollution and the ill health that causes premature death.

Noise nuisance, where valued, is generally based on studies of the impact of traffic noise on house prices – with a monetary value for the change per unit, of noise per household, which varies by level of noise. An example of these values is provided in the UK Department for Transport’s WebTAG guidance

A different approach is used for valuing carbon emissions because of the difficulty in estimating the cost of damage caused by global warming. Most countries have set an absolute limit on carbon emissions and have in place – or planned – a set of policies aimed at meeting that target. The cost of the measures necessary to achieve the target defines the marginal abatement costs of carbon. This cost is used in transport appraisal as a measure of the benefits of carbon reduction on the grounds that governments are willing to spend up to this amount in order to reduce carbon emissions. The UK Department for Transport’s guidance provides a set of values to be found at: http://www.dft.gov.uk/webtag/documents/expert/unit3.3.5.php

Less progress has been made in valuing the benefits of the better information and reduction in uncertainty provided by some ITS applications – for the most part those on inter-urban networks. These improvements can be included amongst the unquantifiable benefits (See Appraisal Methodology) “Unquantifiable Costs and Benefits] of a scheme – and a description can be provided of the improvements in the quality of the journey in support of the quantified part of the appraisal.