Preference Heterogeneity and Willingness to Pay for Travel Time Savings

This paper analyzes individual preference heterogeneity using different approximations, and seeks to obtain and compare the benefit measures derived from the various approximations used. The authors examined different model specifications to detect the presence of preference heterogeneity in a mode choice context. The specification that worked best allows for both systematic and random variations in tastes, with parameters obtained at the individual level using Bayesian methods. Subjective values of travel time (SVT) and expected individual compensated variation were derived and aggregated to obtain measures of social welfare. Results indicate that the benefit measures, both at the individual and at the social level, are sensitive to preference heterogeneity assumptions. SVT and welfare changes derived from travel time reductions could be underestimated if the traditional assumption of taste homogeneity is made, with differences up to 30% detected in both types of measures. The authors also obtained an empirical value for the error made when evaluating changes in social welfare using an approximation of the expected individual compensated variation (expressed as a function of individual SVT) rather than its exact expression. Finding showed that the approximation appears more valid if the probabilities of choice before and after the policy tested remain approximately equal.

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  • Authors:
    • Amador, Francisco Javier
    • Gonzalez, Rosa Marina
    • Ortuzar, Juan De Dios
  • Publication Date: 2005-11


  • English

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  • Accession Number: 01006894
  • Record Type: Publication
  • Files: TRIS, ATRI
  • Created Date: Oct 31 2005 11:06AM