Avoiding Traffic Congestion Externalities? The Value of Urgency

56 Pages Posted: 13 Apr 2020 Last revised: 26 Feb 2022

See all articles by Antonio Bento

Antonio Bento

University of Southern California - Sol Price School of Public Policy

Kevin Roth

Laurits R. Christensen Associates

Andrew Waxman

University of Texas at Austin, Lyndon B. Johnson School of Public Affairs, Students

Date Written: April 2020

Abstract

In Becker (1965) and neoclassical microeconomic theory the value of time is a constant fraction of the hourly wage. When taken to data, however, this value departs from theoretical predictions, and appears to vary with the amount of time saved. By observing drivers on freeways opting to enter toll lanes with high-frequency, time-varying prices that secure a minimum level-of-service, we uncover a new and fundamental aspect of preferences for travel time savings related to urgency. The presence of preferences for urgency, which reflect the fact that individuals often face discrete penalties for being late, allows us to reconcile the pattern observed in the data with neoclassical theory. Using a rich, repeated-transaction data and individual-level hedonic estimation, we show that the value of urgency accounts for 87 percent of total willingness-to-pay for time savings. As a result, ignoring the value of urgency in cost-benefit analysis severely underestimates the true value of time savings that projects deliver, as such omission will typically ignore non-trivial welfare gains to a potentially large number of individuals.

Suggested Citation

Bento, Antonio and Roth, Kevin and Waxman, Andrew, Avoiding Traffic Congestion Externalities? The Value of Urgency (April 2020). NBER Working Paper No. w26956, Available at SSRN: https://ssrn.com/abstract=3574421

Antonio Bento (Contact Author)

University of Southern California - Sol Price School of Public Policy ( email )

Los Angeles, CA 90089-0626
United States

Kevin Roth

Laurits R. Christensen Associates ( email )

800 University Bay Dr., Suite 400
Madison, WI 53705
United States

Andrew Waxman

University of Texas at Austin, Lyndon B. Johnson School of Public Affairs, Students ( email )

2300 Red River St., Stop E2700
PO Box Y
Austin, TX
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
9
Abstract Views
162
PlumX Metrics