Abstract
Despite its importance in benefit-cost analyses in the water supply, transportation, and health care sectors, there are relatively few empirical estimates of the value of travel time savings (VTT) in low-income countries, particularly in rural areas. Analysts instead often rely on a textbook “rule of thumb” of valuing time at 50% of prevailing unskilled wage rates, though these benchmarks have little empirical support in these settings. We estimate the value of travel time through the use of a repeated discrete choice stated preference exercise. We asked 325 rural households in Meru County, Kenya to rank two new hypothetical water sources against their current water source. The two new hypothetical sources were described as safe and reliable to use, but varied only in their distance from the household and the price charged per water container. Results from random-parameters logit models imply an average value of travel time of 18 Ksh/hr, and generally support the 50% rule. These models produce the first individual-level VTT estimates reported in a low-income setting, and indicate statistically-significant heterogeneity in VTTs, though the heterogeneity is not well correlated with observables. A latent-class approach identifies four classes of respondents: one class (about one third of respondents) values time very highly (49 Ksh/hr), one poorer group values time hardly at all (less than 1 Ksh/hr), and two groups value time at approximately 9 Ksh/hr.
Highlights
The value of travel time savings (VTT) plays a central role in many benefit-cost analyses
Because there are a number of existing studies, benefit-cost analysts usually find that the costs of primary data collection for site-specific VTT estimates outweigh the benefits and instead rely on benefit transfer approaches
Analysts in developing countries could choose to transfer these rules of thumb to local wage rates, but the empirical evidence is thin that the rule transfers well from wealthy auto and train commuters to poor rural villagers walking to water, or to slum residents walking along busy highways into the central city
Summary
The value of travel time savings (VTT) plays a central role in many benefit-cost analyses. By exploiting the panel nature of the stated preference exercise, the paper is the first (to our knowledge) to report individual-level estimates of the VTT in a low-income country. We use both random-parameters logit and latent-class multinomial logit (MNL) frameworks. The technique is simple and could be replicated in other areas of low-income countries to build a better knowledge base of the VTT in lowincome countries It could be applied in any situation – still common across the globe – where people are either bringing water back to the home or paying a “water vendor” to bring it to them. We proceed by first outlining the existing estimates of VTT in low-income countries, and describe our study site in rural Kenya and households’ existing water supply situation there. We report our VTT results and robustness to a number of different assumptions, and conclude with a summary of the key results and thoughts on replicating the study elsewhere
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