Microsimulation-Based Estimation of Value of Employer’s Business Traveller’s Value of Time: Comparison with the Current Estimation Practices and Implications for the Investment Appraisal

Estimation of the value of travel time savings (VTTS) in the context of business travel has frequently relied on the assumption that travel time is in principle wasted and thus any reduction in travel time ought to be valued at the cost of a unit of labour and fully accrued to the employer. A more flexible approach was introduced by David Hensher in the 1970s, yet this is characterised by far more demanding requirements in terms of modelling individual travel behaviour, activity choice, and productivity. However, a recent contribution by the authors, in the form of a microeconomic framework of in-travel activity choice and productivity, has demonstrated that it is in principle possible to infer in-travel behaviour using a microeconometric framework which offers the possibility of a tractable operationalisation of Hensher’s approach. In the current paper the authors use data from the United Kingdom Study of Productive Use of Rail-time 2009 to compare values of employers’ savings in business travel time (VEBTT) estimated using sample data and microsimulation-inferred values based on in-travel activity choice and productivity framework (termed PPS framework), as well as to cost-saving approaches and currently used appraisal values. The authors conclude that there exists some discrepancy between the values derived directly from the sample and from the microsimulation due to imperfections in inferences of various parameters propagating and cumulating in calculations of the actual VEBTT. In terms of comparing the Hensher and cost-saving approaches, the former results in negative VEBTT indicating that employers may not gain from reducing travel time. The authors suggest that perhaps improvements in in-travel working conditions and productivity could be more beneficial in certain contexts than marginal reductions in travel time.