Time matters when you want to repair a road.
But not how you might expect.
The Value of Time (VOT)
In a new paper, three economists and three Lyft representatives, calculated the value of our time. Their approach was unique. Through 14 million observations for 3.7 million customers, they paired different wait times and prices for Lyft rides. The wait times could be high or normal while for price, the possibilities were low, normal, or high. After creating combinations that included high wait time and low price or high price and normal wait time, the researchers recorded whether the person took the ride. They also observed the weather, the proximity of mass transit. They noted if it was a weekday or weekend, rush hour, or midday.
With ETA the driver’s arrival time and price moving lower or higher, rider requests varied:
Then, using rather complex formulas, the researchers concluded that the value of time is $19.38 an hour. However, the weekend number is $18 and a weekday, $20. Then the VOT got even higher during rush hour ($24) and bad weather too ($26.56).
In the Lyft user app (below), the rider was told the price would get a 25% boost and her wait was 2 minutes:
Repairing a Road
The value of time is a part of the cost/benefit analysis that helps U.S. agencies decide whether to fix a road or build a new bridge. Yes, the time it will take to complete the project matters. However, they also look at the VOT.
This is where we might have a debate.
The economists that did the Lyft study say that the U.S. price tag for an hour is too cheap. At $14.20 an hour (for going to work and less for personal time), the government number says the time saved by a better road or a new bridge is worth 35 percent less than it should be. It is making the VOT for traffic congestion cheaper, undervaluing project proposals, and underinvesting.
Our Bottom Line: Opportunity Cost
As economists, we know we are just talking about the opportunity cost of a decision. Defined as the alternative we decided not to do, it is the cost of the choices we make. With VOT, it is a dollar amount. Spending an hour with Lyft during Monday morning rush hour means sacrificing $24.00 of our time that could have been used elsewhere.
Or, as Ben Franklin said in 1748:
And finally, the value of time required by a penny might not be worth it…
My sources and more: This NBER research on the value of time is the perfect complement to our recent econlife post.
