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Annex 2: Valuing Non-market Impacts

CURRENT RESEARCH / PLAUSIBLE ESTIMATES 13

Following are some areas where research has been undertaken to derive plausible estimates for particular non-market costs and benefits.

Valuing Time 14

Within central government, the Department for Transport’s (DfT) approach to valuing time in the appraisal of road schemes and other projects is well established.5 This approach uses different values for ‘employers’ time and ‘own’ time (or working and non-working time).

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The value of employees’ time-savings (working) is the opportunity cost of the time to the employer. This will be equal at the margin to the cost of labour to the employer: the gross wage rate plus non-wage labour costs such as national insurance, pensions and other costs that vary with hours worked.6

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The values for working time used in the appraisal and modelling of transport projects and policies, are based on the mileage weighted labour costs of users of each mode of transport.The National Travel Survey (NTS) contains detailed information on the distance and amount of time spent in travel by individuals in each earnings band to provide the appropriate weights for each mode of transport. The New Earnings Survey provides estimates of the earnings of drivers of commercial and public service vehicles. In theory, it is possible to collect data on the earnings of those who would use the project being appraised, although this is rarely practical.

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It is accepted practice to use a national average standard value of non-working time (equity value of timesavings) for all modes of transport for appraisal purposes. The use of a project-specific value of non-working time might be preferable in cases where time-savings can be captured through revenue from fares.These will often form part of a commercial decision by, for example, a train operator assessing the case for accelerating a service.

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For transport appraisals, journeys to and from work are included in non-working time. The value of savings in travel time for work is assumed to rise at roughly half the rate of real income.7 For non-work time, this assumption balances a number of factors that might either tend to increase or decrease the value of time-savings relative to income.These might include a decline in the marginal utility of money as incomes increase, changes in the length of the working week and changes in the quality of travelling conditions.

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Some additional considerations when valuing time-savings include: ❑

People place a higher value on saving walking or waiting time than on saving time spent in a vehicle. Evidence suggests that walking and waiting time should be valued at double that used for in-vehicle time.8

Time spent in overcrowded conditions on public transport also carries a higher weight, the value being determined by the severity of the overcrowding.

5 See DfT website for additional guidance: http://www.dft.gov.uk 6 DTI uses 27 per cent as an adjustment for non-wage labour costs, while HSE uses 30 per cent. See Labour Cost Survey (LCS) 1992 7 See DfT website: http://www.dft.gov.uk 8 See DfT website: http://www.dft.gov.uk

THE GREEN BOOK

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The Green Book  

The Green Book is HM Treasury guidance for Central Government, setting out a framework for the appraisal and evaluation of all policies, pro...

The Green Book  

The Green Book is HM Treasury guidance for Central Government, setting out a framework for the appraisal and evaluation of all policies, pro...

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