How Do You Value Your Time?

DESCRIPTION Photo: respres

Minneapolis allows single-occupancy cars to use its HOV expressway lanes for a price, which is typically between $1.50 and $2.50 on I-35W during morning rush-hour between the airport and downtown. The price seems to be higher when traffic in the other lanes is heavier — the city is sensibly applying peak-load pricing.

Yesterday, it was snowing; traffic in the four regular lanes was crawling, and the city had posted a price of $8 for use of the HOV lane — but the HOV lane was nearly empty! Apparently, the equilibrium price, even in a snowstorm, is somewhat below $8, which may seem surprising. Say it takes 30 minutes to get from the airport to downtown with congestion, as compared to 10 minutes without; surely many drivers’ value of time (saving 20 minutes) exceeds $36 pre-tax/hour ([$8 x 60/20]/[1-.33], where .33 is the marginal tax rate). Probably so, but a lot of research shows that people think about commuting time differently and require a savings equal to more than three times their wage. So maybe the empty HOV lane is not surprising. (HT: DJH)


robert drynan

I'm 74 years old. I have been offered payment to manage our condominium and I still do some short consulting travel. I don't manage the condo, because it takes time, the most valuable commodity I have at this time of my life. I still do the consulting as an advisor to a school in Venezuela, because it is a contribution to the future of others . . . not for the money. You want to know the value of time? ? ? Think of it in terms of how much you might expect to have left and what you want to do with. NO DOLLAR SIGNS THERE. RD

sudp

People have also learned to utilize their commuting time better with mobile internet.They could still get some work done, which trumps the payment for HOV option.

Erik

People may assign some utility to the downtime of sitting in the car. So while it's not necessarily "leisure," it's not work either. This may explain why commuting time appears at first glance to be incorrectly valued by commuters.

Nerf

I don't get it. Do you think people would be earning money if they weren't commuting? You seem to make that assumption all the time and I feel like I'm missing something here.

If I spend an extra 30 minutes in traffic, my income won't change one iota.

Quinton

@Nerf Dr. Hamermesh is employing a fairly common micro-economic concept that assigns a $ value to time. Often it comes out with seemingly contradictory or irrational conclusions. I'm with you though. I think the entire idea is fundamentally at odds with how people think about the world. It can be interesting but pretty useless as a critique or tool to explain people's behavior.

John

I live in Minneapolis, and the story is even more confusing. I-394 also has a pay-to-enter HOV lane, and the pricing was also $8 that day, but it was so full the pace of traffic was identical to regular lanes! Maybe more environmentally conscious people live West, so it was filled with customers who didn't have to pay (it's free if you have 2 or more in the car), or maybe Wayzatans are rich but don't care about their time, so they're using the HOV lane as a wealth signalling device. Either way, weird. And weird that the same day exposed very different results from different parts of the Minneapolis HOV system.

potf

Agree with Nerf/4 : zero immediate difference of income if stuck in traffic because not paid hourly.

OTOH, maybe commuting time is part of work time and if I remember well my Macro economics analysis 101, leisure time costs as much as Working time earns.

So getting stuck commuting = less leisure time = Same Revenue, less spending ?

Dr. Van Nostrand

Living in Minneapolis I can tell you that Airport to Downtown in 10 minutes with congestion would absolutely be worth $8 because your time savings would be closer to an hour.

Ben D

Isn't it the MARGINAL value of time that is important? A salaried worker will not change their income by working a little more or less. Why do economists always make this econ 101 mistake?

di

People usually don't do dollar per minute calculations, they instead have in mind a price point either in dollars ($5, $10, whatever) or in percentage (10% whatever) savings to feel it's worth it to go out of the way to change a routine, shop at a different store, try a different product, etc., In this case it's the opposite, a cap of how much money one will spend to save time. I bet if it were $5 there would be a lot of people in the HOV.

Figuring out the value of one's time only matters if one can use that time to do something that furthers one's work. If you've got the kind of job that there is always work to do (scientist, business, etc) then you may want the time because it accomplishes more toward your goals, which may result in some kind of monetary or career recognition reward. If you work a fixed shift at the shoe store, it does not affect your job at all whether you took ten or forty minutes to drive there so long as you are on time.

This is why it did not suprise me to hear on the Freakonomics radio bit on NPR a while back that lower income people save more on food...if you ask an engineer whether he or she is going to spend half an hour doing work on a project for the job, or clipping coupons, which do you think that engineer will think is ultimately more productive with the time? And if you work really long hours, which many highly paid professionals do, you might rather lose out on $4 of coupons in order to have half an hour of leisure.

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Tom

So, I can show up to work late one day with a ready-made excuse, or I can pay $8 for the privelege of being one of the first people to work that day.

Tough choice.

Bob DeBoer

It isn't the value of work time or whether or not you would be working, it is how you value your time generally that matters. Wages are just a reference point in my view to figure out human behavior as referenced above. It could be work time, but it might be something else that you value enough that you want to spend less time on the road. Certainly there are specific examples where the decision is easy. Suppose you will be charged $25 if you are late for day care pick-up and don't know if you are going to be able to make it on time. If the "free-flow" lane on MnPASS costs $5, we know people will make that decision and will see the value.

John B

Very simply. The price was just too high.

Once they saw the lane was empty, the price should have dropped to something like $5.00 and people would have started to use the lane. If no people at $5.00, go down to $4.00.

The goal is to have the lanes used to aid congestion, cut down on fuel use and lower pollution. The goal is not to set a price so high that no one will use it.

Think like a good business owner trying to encourage consumers--not like a (government controlled) monopolist trying to gouge the public.

rageon

I would assume that a large portion of people who earn in excess of $36/hr are not actually paid by the hour.

Joe

Lots of interesting speculation, but it seems to mostly ignore the biggest reason that people didn't use the HOV/premium lane -- you have to arrange to get a transponder for payment in advance. I'll bet there are lots of people who would have gladly paid for a quick ride that day, but who never signed up to get the transponder (very few people seem to have them). The next day, maybe a few signed up, and others saw no immediate value (time-discounting) and thus put it off again only to regret it some time in the future.

Einstein

Bob #12 spot on....there are many reasons to pay for speed. You have tickets to a $100 sporting event you don't want to miss. Or you have tickets to a $0 event you don't want to be late for.....like your kid's school concert.

But to DH's point.....someone to whom money is no object wouldn't think twice about paying $8. A $10/hr wage earner may simply have to be late.

Nicholas Cheong

It's not surprising that commuters value their leisure time less than their wage because it's not like they can get paid for that hypothetical 20 minutes they save driving to the airport from downtown.

It's interesting to note that while people won't spend a bit more money to save time on the road, they're willing to spend money to save trouble (although they don't save time) to eat out, assuming they can cook everything they would like to eat, of course. The monetary savings are significant, not to mention other non-monetary benefits, as I blogged about here:

http://comopolis.blogspot.com/2010/10/math-of-eating-out-how-would-you-like.html

PaulD

Economists have this unspoken assumption that money should always trump everything else. If I shell out a few buck more, I should be able to get preferential treatment, even on a public thoroughfare.

What's next? For an extra $250 you can ensure that your kid gets the best teachers at the public school?

Martin

In Israel, we have a brand new "Fast Lane" on one of the busiest stretches of highway in the country, between Ben Gurion Airport and Tel Aviv (Ayalon Freeway). It costs between NIS 6 and a theoretical high of NIS 75 (but is capped now at NIS 30-something). Mass transit and vehicles with 4+ people ride for free. ($1 is about NIS 3.6)

What's different is that it's operated by a private company; a minimum 70km speed is guaranteed; part of the system is a large (2000 car) parking lot with shuttle buses running into Tel Aviv every 5 minutes during peak times; and the price is updated every few minutes according to some sort of algorithm that takes into account time of day, traffic on the "normal" road, traffic on the "Fast Lane," etc.

It's only one-way, into Tel Aviv (you have to wait in traffic to get out of the city). It's also been criticized as a "rich lane." And you still get stuck in traffic when it ends in Tel Aviv, but you can save 30-45 minutes (or even more).

It's used a lot throughout the day, even when there isn't much traffic, and I've even seen cars on it at night when there's no traffic (but still an NIS 6 fee).

https://www.fastlane.co.il/
http://he.wikipedia.com/wiki/הנתיב_המהיר_בכביש_1

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Ron

The availability of HOV lanes with toll capability in Minnesota is relatively new. Most Minnesotans are not accustomed to paying tolls, so this leads to some resistance to using the pay feature of the HOV lanes. Minnesotans also have a reputation for being frugal, so John B's comment #13 is spot on.

The other factor affecting this choice is that for most drivers, the HOV lane only represents a portion of their commute. You can pay for shorten a portion of the drive home, only to be delayed once the HOV segment ends. With a snow-affected commute, it will be a long drive regardless of the benefit of the HOV segment, and the overall length will be an unknown, so it is impossible to do an accurate cost-benefit analysis.