The sensitivity of the valuation of travel time savings to the specification of unobserved effects

The behavioural value of travel time savings (VTTS) remains a controversial data item in the evaluation of transport projects. Over the last 40 years we have seen numerous empirical studies on the amount that an individual or firm is willing to pay to save a unit of travel time (or more precisely transfer a fixed amount of time from one activity to another). With a few exceptions, the majority of empirical studies have used essentially the same data metric and model estimation procedure. The most popular approaches have used either revealed preference (RP) or stated preference (SP) data and a multinomial logit (MNL) choice model to identify marginal rates of substitution between travel time and price of a trip. A few more advanced studies have integrated RP and SP data and have explored the gains in behavioural power of models that relax, to varying degrees, the underlying assumptions that produce the MNL model. This paper highlights the potential gains from a more carefully considered structure of the unobserved effects which condition the form of a discrete choice model, and hence the possible misinference from the simpler MNL specification. We demonstrate the implication for VTTS estimates of serial correlation between the SP treatments, covariance amongst alternatives, presence of individual specific (random) effects or heterogeneity, and differential variance of the unobserved effects.