Reduction of Vehicle Operating Costs

Savings in VOC are the most easily measurable and frequently the most important benefit from transport projects. Such savings usually include fuel and lubricants; tires; maintenance; and economic depreciation, such as vehicle wear and tear. These costs depend in turn on road geometry  surface conditions driver behavior, and traffic control. VOC are higher on grades, curves, rough surfaces, and slower roads. Changes in any of these parameters will result in a change in vehicle operating costs.

Time is valuable. Any transport project that saves time produces important and measurable benefits. In many cases, the value of time saved is reflected in demand for faster service and the price that consumers are willing to pay for it, as in the case of airplane services. The value that consumers attach to time saved must be derived indirectly, especially for most roads. This section presents a methodology for valuing time savings when their monetary value cannot be measured directly.

The Value of Working Time

If a working person undertakes a trip during working hours, the time employed is time not used at work. Working time saved, then, is working time that can be used to produce goods and services, and its value is the wage rate plus any other costs associated with employment, such as social security taxes. On this basis, savings in working time may be valued at the cost to the employer.

The Value of Nonworking Time

Individuals’ willingness to pay determines the value of time saved in trips undertaken for nonworking purposes. Because no explicit market exists for time spent at leisure, no market price for that time can be observed and the value of time, therefore, must be inferred. In principle, willingness to pay for savings of leisure time should be lower than willingness to pay for savings of work time, because the wage rate includes payment both for the effort and the scarce skills embodied in the work activity.

Walking and Waiting Time

Most people dislike waiting and walking for nonrecreational purposes. Consequently, projects that reduce waiting time and walking generate more benefits than projects that only reduce travel time. Recent studies in Europe have shown that the value of time saved in transfer and waiting is valued at a third to two times more than in-vehicle traveling time. Chilean studies  have shown even higher ratios. We should value walking, waiting, and transfer times—excess travel time—at a premium. Whereas estimating country-specific values is always preferable, in the absence of such values a good rule of thumb is to value walking, waiting, and transfer time 50 percent higher than in-vehicle traveling time. Box 10.1 shows an example of these concepts applied to a transport project in Brazil.

Freight Traffic

Time saved for freight vehicles entails cost savings for vehicle owners. At the margin, the willingness to pay to save time is equal to the marginal cost of resources saved. The factor cost method of valuing time saved for freight involves identifying the components of vehicle costs. These may vary with the amount of elapsed time, and include wages, interest on capital employed or tied up in inventory on wheels, and licensing fees. The stated preference method, which involves carefully customized studies of shipper choice, may pick up additional, subtler, sources of value and, hence, yield somewhat higher values for time savings. In the absence of such studies, we suggest the resource cost approach.