Department for International DFID Development The Value of Time in Least Developed Countries (Knowledge and Research (KaR) 2000/01 DFID Research No. R7785) Final Report July 2002 I.T. Transport Ltd. Consultants in Transport for Rural Development The Old Power Station, Ardington, Nr. Wantage, Oxon, OX12 8QJ, UK Telephone: 01235 833753/821366 Int. + 44 - 1235 - 833753/821366 Facsimile: 01235 832186 E-mail: [email protected] TABLE OF CONTENTS Page EXECUTIVE SUMMARY.............................................................................................. VIII SECTION A: BACKGROUND AND THEORY 1.0 INTRODUCTION..........................................................................................................1 1.1 Purpose of the research ...............................................................................................2 1.2 Outputs of the research................................................................................................3 1.3 Position paper and interim report ...............................................................................3 1.4 Structure of the report..................................................................................................4 2.0 THE VALUE OF TIME: A REVIEW OF THEORIES ..............................................4 3.0 VALUATION OF WORKING AND NON-WORKING TIME SAVINGS ..............5 3.1 Valuing working time savings......................................................................................6 3.2 Valuing non-working time savings ..............................................................................7 4.0 ESTIMATION OF THE WILLINGNESS TO PAY FOR THE VALUATION OF NON-WORKING TIME SAVINGS...................................................................................8 5.0 PRESENT APPROACHES TO VALUATION OF TRAVEL TIME SAVINGS IN DEVELOPED AND DEVELOPING COUNTRIES.......................................................10 5.1 Developed countries ..................................................................................................10 5.2 Developing countries .................................................................................................12 6.0 RELEVANT ISSUES IN THE VALUATION OF TRAVEL TIME SAVINGS IN THE RURAL CONTEXT OF LDCS................................................................................15 6.1 Relevance of division of time savings into working and non-working classes in the context of rural areas of LDCs ........................................................................................15 6.2 Preference approaches in a subsistence context .......................................................16 6.3 Use of SP vs. RP approach for the measurements of WTP........................................16 6.4 Non-clarity between marginal value of leisure time and VOT ..................................16 6.5 Perceived values of time vs. resource values of time (or behavioural value vs. resource value) ................................................................................................................16 6.6 Potential variation of travel time savings..................................................................17 SECTION B: STUDY AREA AND METHOD 7.0 SOCIO-ECONOMIC CONTEXT OF BANGLADESH AND THE RESEARCH AREA, JESSORE DISTRICT ..........................................................................................19 8.0 RESEARCH METHODOLOGY................................................................................22 8.1 Qualitative approach .................................................................................................22 8.2 Quantitative approach ...............................................................................................23 SECTION C: RESULTS 9.0 SOCIO-ECONOMIC CHARACTERISTICS AND TRAVEL PURPOSE.............27 9.1 Identification and estimation of the indicators for differentiations of households on the basis of economic status.............................................................................................28 9.2 Defining the threshold per capita income for poor and non-poor travelers .............30 9.3 Time budget analysis .................................................................................................31 9.4 Analysis of travel purpose..........................................................................................33 ii 10.0 VALUES OF TRAVEL TIME SAVING AND SUITABILITY OF ALTERNATIVE APPROACHES....................................................................................38 SECTION D: CONCLUSIONS AND RECOMMENDATIONS 11.0 CONCLUSIONS ........................................................................................................51 11.1 Overall conclusions .................................................................................................51 11.2 Conclusion in relation to outputs and purpose........................................................54 11.3 Implications for appraisal methodology and policy................................................56 11.4 Recommendations ....................................................................................................56 BIBLIOGRAPHY & REFERENCES ..............................................................................58 iii ANNEXES Annex-I: Derivation of Marginal Valuation of Time Spend on an Activity, including Travel Annex-II: Some Basic Facts of Bangladesh Annex-III: Notes on Focus Group Discussions Annex-IV: Household Survey Questionnaire Annex-V: Sample Revealed Preference Questionnaire Annex-VI: Sample Stated Preference Questionnaire Annex-VII: Alternatives, Choice Options and Values of the Variables in the Stated Preference (SP) Experiments Annex-VIII: Travel Purpose Survey Questionnaire Annex-IX: Step-by-step Procedures for Designing a Stated Preference Experiment Annex-X: Descriptions of the Study Roads Annex-XI: Results of the Household Consumption Econometric Models Table Annex-XII: Analysis Strategy for Preference Data and Model Estimation Annex-XIII Coefficient Values and Corresponding t-values of the Chosen Models Annex-XIV: Calculation of Rural Average Wage Rate in Bangladesh from Secondary Data Annex-XV: Estimation of SCF and SWRs iv ABBREVIATIONS CBN Cost-of-basic-needs DFID Department for International Development FRA Feeder Road Type-A FRB Feeder Road Type-B GC Growth Centre GDP Gross Domestic Product GNI Gross National Income hr Hour HL Hierarchical Logit IMT Intermediate Means of Transport IVT In-vehicle Time KaR Knowledge and Research km Kilometres LDC Least Developed Country MNL Multinomial Logit Models NMT Non-motorised Transport MT Motorised Transport PPP Purchasing Power Parity RDP Regional Domestic Product RNF Rural Non-Farm RP Revealed Preference SCF Standard Conversion Factor SP Stated Preference sq km Square Kilometre SWR Shadow Wage Rate Tk Taka (Bangladeshi Currency) VOC Vehicle Operating Cost VOT Value of Time WLKT Walking Time WT Waiting Time WTP Willingness to Pay **** APPROXIMATE EXCHANGE RATE USD 1.00 = Tk 57 v Map I vi Map II vii EXECUTIVE SUMMARY i. Introduction: the need for a reliable method for estimating rural travel time savings in LDCs Travel time savings are a major benefit resulting from investments in transport infrastructure and service development. In developed countries these benefits can account for as much as 80% of overall benefits. Usually in a developed country transport investment appraisals quantify travel time saving benefits using standard unit values provided by an appropriate transport/highway agency. In the case of non-availability of such unit values, travel time savings are estimated using an established national practice. However, in developing countries the practice is less well spread despite a common recognition of the fundamental importance of the value of travel time savings in economic evaluation. This is partly because there is a paucity of empirical evidence to support the use of conventional models of value of time (VOT) estimation in developing countries where work patterns, particularly of the poor, are so diverse. Without reliable methods to value travel time savings, economists continue to use vehicle operating costs as means to assess investments (exceptions are urban, inter-urban and multilateral or bilateral donor assisted rural transport projects). This difference of approach leads to a bias of investment decisions that are most unlikely to benefit rural poor and understates the poverty reduction potential of transport interventions in Least Developed Countries (LDCs). The bias stem from the fact that most rural travel and transport in the LDCs is undertaken by poorer people walking and headloading on local roads, tracks and paths and any improvements to local infrastructure and services have potential to bring about large time savings due to modal shifts. In the backdrop of more and more infrastructure investments being made in an attempt to reduce poverty, it is therefore essential that rural travel time savings, especially of the poor people themselves, are valued and factored into investment decisions. The conventional approaches to valuing time used routinely in developed countries assume that working hours are standard, most people work in formal employment (wage earning), journeys can easily be differentiated into “for work purposes” and “for non-work purposes.” While the working time savings are valued based on the augmented wage rate1, the non- working time savings are valued based on the willingness to pay for travel time saved