On the Value of Business Travel Time Savings

Abstract

Theoretical models of the value of travel time savings (VTTS) in business are analyzed. The Hensher formula is derived on the basis of these models. Previous research on business VTTS, including the wage-rate-plus approach and the Hensher approach, is reviewed. Five issues are identified with respect to business VTTS: the business travel decision maker, the player who is willing to pay to save travel time, productivity while traveling, patterns of business travel schedules, and wage payment for working overtime. Four time allocation models are formulated, and the business VTTS is derived for each one. The models are based on group utility maximization according to the combined viewpoints of an employer and an employee. Both zero productivity and positive marginal productivity while traveling are considered. In addition, two patterns of travel schedule are examined: business travel within work hours and business travel outside work hours. The Hensher approach is derived theoretically from the group utility maximization approach. The derivation shows that business VTTS depends on two assumptions: the balanced weight of the utility functions between the employer and the employee and the allocation of saved business travel time to leisure time in proportion to the ratio of business travel time that occurs within leisure time to total business travel time. The implications of the Hensher formula are discussed.