Abstract
Neoclassical microeconomic theory postulates that the value of time is a fraction of an individual’s hourly wage. When taken to the marketplace, however, this value appears to depart from theoretical predictions. To reconcile them, we conceptualize the value of urgency, which reflects penalties for lateness. Observing users repeatedly entering tolled lanes in freeways, we estimate individual hedonic price functions, and show that the value of urgency accounts for 87 percent of total willingness-to-pay for time savings. We document how traditional approaches for cost-benefit analysis fail to detect this benefit, underestimating the true value projects deliver to a large number of individuals.
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