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The Hensher equation: derivation, interpretation and implications for practical implementation

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  • Richard Batley

Abstract

The ‘Hensher equation’ is a prominent method for valuing the benefits of business travel time savings. This paper derives the equation from first principles, revealing several underpinning assumptions, as follows: (I) production is a function only of labour given fixed capital; (II) the value of the marginal product of labour is equal to the wage; (III) business travel has constant productivity whether it takes place during work or leisure; and (IV) utility is a function of work, leisure and travel time. Informed by this derivation, the paper interprets the features of the resulting valuations. Finally, the paper also derives restricted and extended cases of the Hensher equation, applicable to a range of practical situations where the equation might be implemented. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Richard Batley, 2015. "The Hensher equation: derivation, interpretation and implications for practical implementation," Transportation, Springer, vol. 42(2), pages 257-275, March.
    • Handle: RePEc:kap:transp:v:42:y:2015:i:2:p:257-275
    DOI: 10.1007/s11116-014-9536-3
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    References listed on IDEAS

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    1. N/A, 1974. "Appraisal," National Institute Economic Review, National Institute of Economic and Social Research, vol. 67(1), pages 3-7, February.
    2. DeSerpa, A C, 1971. "A Theory of the Economics of Time," Economic Journal, Royal Economic Society, vol. 81(324), pages 828-846, December.
    3. Bates, John J, 1987. "Measuring Travel Time Values with a Discrete Choice Model: A Note," Economic Journal, Royal Economic Society, vol. 97(386), pages 493-498, June.
    4. Evans, Alan W, 1972. "On the Theory of the Valuation and Allocation of Time," Scottish Journal of Political Economy, Scottish Economic Society, vol. 19(1), pages 1-17, February.
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    Cited by:

    1. Mark Wardman & Glenn Lyons, 2016. "The digital revolution and worthwhile use of travel time: implications for appraisal and forecasting," Transportation, Springer, vol. 43(3), pages 507-530, May.
    2. Pawlak, Jacek & Polak, John W. & Sivakumar, Aruna, 2017. "A framework for joint modelling of activity choice, duration, and productivity while travelling," Transportation Research Part B: Methodological, Elsevier, vol. 106(C), pages 153-172.
    3. Chiara Calastri & Jacek Pawlak & Richard Batley, 2022. "Participation in online activities while travelling: an application of the MDCEV model in the context of rail travel," Transportation, Springer, vol. 49(1), pages 61-87, February.
    4. Palma, David & Calastri, Chiara & Pawlak, Jacek, 2023. "The role of time budgets in models of multi-tasking while travelling: A comparison between the MDCEV and eMDC approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 176(C).
    5. Ho, Chinh Q. & Mulley, Corinne & Shiftan, Yoram & Hensher, David A., 2016. "Vehicle value of travel time savings: Evidence from a group-based modelling approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 88(C), pages 134-150.
    6. Balbontin, Camila & Hensher, David A. & Ho, Chinh, 2023. "Light commercial vehicles destination choice: Understanding preferences relative to the number of stop and tour-based trip type," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).
    7. Wardman, Mark & Batley, Richard & Laird, James & Mackie, Peter & Bates, John, 2015. "How should business travel time savings be valued?," Economics of Transportation, Elsevier, vol. 4(4), pages 200-214.

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