Small Time Savings, Loss Aversion and Transport Cost-Benefit Analysis
European Transport Conference 2014Association for European Transport (AET), 2014
This paper examines the treatment of small time savings in appraisal of transport projects. Small... more This paper examines the treatment of small time savings in appraisal of transport projects. Small time savings which constitutes about fifty percent (50%) of total travel time savings has been a subject of controversy and debate among researchers especially the advocates of Constant Unit Value (CUV) and the proponents of Discounted Unit Value (DUV) approaches. The authors examine the use of concept of loss aversion as explanation of the variation of value of travel time savings (VTTS) by sign and size. Furthermore, the authors explore the impact of loss aversion on scheme benefits, worth and ranking. The authors calculate the value of travel time savings using the CUV)and the DUV functions. Thereafter, the authors estimate the user benefit using the rule of half. A review is made of evidences in literature on loss aversion value as well as the threshold for small time savings above which time savings are regarded as ‘non small’. The authors use synthetic data (time savings generated from normal and uniform distribution) and case study data (time savings from major inter urban road schemes) The paper concludes that treatment of small time savings (CUV or DUV) have impact on scheme value with the user benefits being higher under CUV than DUV. However, the result shows little or minimal effect on scheme ranking. Loss aversion reduces scheme worth. The lack of consensus among researchers on acceptable threshold for small time savings as well as lack of agreement on loss aversion value weakened the application of the DUV approach. The CUV is therefore recommended due to its simplicity and consistency. The result of the paper has important policy implications for evaluation of transport projects.
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Papers by Fatai A Yakeen