How Much is Your Travel Time Worth?

John Whitehead linked to this great online tool for quickie calculations of value of time used to justify transport projects. From the Political Calculations site:

Suppose, for a moment, that the people who run your local government really cared enough about you and your fellow citizens to do something that might actually benefit you, by funding a fancy transportation project that could shave 13 minutes off your time while commuting once it's done.

Is it worth it? 

The answer, at this point, is "it depends". And honestly, what it depends upon is what your and your fellow commuters' time is really worth.

 And here is the explanation of their default model, based on an actual project:

All the default numbers in the tool above are taken from a federally-funded transportation project in North Carolina, which promised to spend $461 million to reduce the travel time of some 100,000 train commuters between Charlotte and Raleigh by 13 minutes a trip, which would bring their one-way transit time down to just under three hours. We then adapted the math developed by John Whitehead for determining the benefit-cost ratio for the project to estimate what value per hour saved per individual that the state's politicians were assigning to the primary declared benefit of the project.

In case your value of time is sufficiently high that you won't check the model yourself, the value of time that justifies this particular project is $638 per hour.  Yikes.

Taxes are Not Benefits, and an EIA is Not a BCA

California is intent on moving forward with building a high speed train. There are lots of supporters of the project, and lots of attempts to make the project economically justified. For instance, here is a new economic impact report from the Bay Area Council Economic Institute that has high speed rail supporters excited. Here is what America 2050, an enthusiastically pro-high speed rail group, reported on the Bay Area report:

The Council's study identified a potential economic benefit of up to $2.5 billion for the region over time from construction-related jobs and investment, improved real estate values near stations and the right-of-way, and employee time savings. The additional benefits of the fewer polluting diesel locomotives and shorter travel times are in addition to this economic boon.

The headline of the America 2050 piece claims that the two reports cited in their story show the benefits of the project outweigh the costs. Neither report did any such thing. The BACEI report is an economic impact analysis (EIA), which is substantially different than a benefit cost analysis. See here for details. An EIA only looks at how a project will affect a given location's economy. There are no mentions of costs, and because many of the economic effects are transfers rather than new activities EIA should be used with caution.

For instance, according to Table 14 of the BACEI the report (page 27), the $2.5 billion in benefits is the high estimate. The low estimate of benefits is just under $1.5 billion.The BACEI counts state, local and property taxes as benefits, which in this EIA they are because it is new money to the state. But to evaluate the project's benefits against costs you recognize that taxes are not benefits (and certainly taxes should not be called an economic boon). They are transfers. The state gets revenue from taxes, but the people who pay the taxes don't have that money anymore. The costs and benefits balance each other out.

If this report was a BCA, then many of the benefits claimed get wiped out. The report highlights increased property values as a benefit and travel time savings as a benefit. You don't get to count both of these. The reason the property values increased, according to the study, is because of travel time savings. So either travel time savings are capitalized into property values, in which case you do not include travel time savings in your cost benefit analysis, or they are not, and then you estimate travel time savings as a benefit and leave property values out of it.

In any event, the BACEI economic impact report is fine for what it is, but it isn't a benefit-cost analysis. The EIA makes no claims as to whether or not the project makes sense economically, and this should be made clear when this, and similar, reports are highlighted.