How Economists Put a Price on Time

How the value of time is estimated using wages and people's choices, and why it matters for decisions like building roads and metros.

Economists often need to put a rupee value on time.

Methods

Wage rate: an hour of work time is often valued at the worker’s wage.
Revealed preference: observing choices, like paying extra for a faster train or a toll road.
Surveys: asking how much people would pay to save time.

Leisure time

Leisure time is usually valued at a fraction of the wage, since people don’t always trade leisure for work at the full wage.

Uses

Transport projects: time savings are often the biggest benefit in cost-benefit analyses of roads, metros and airports.
Regulation: estimating costs of paperwork.
Health: valuing time lost to illness.

An example

A new metro line saves 10 lakh riders 20 minutes a day. If each hour is valued at 100 rupees, daily savings are:

10 lakh × (20/60) × 100 = about 3.3 crore rupees a day, over 1,200 crore rupees a year.

Differences

Time is valued differently depending on income, purpose (business or leisure) and comfort (a crowded bus feels longer than a comfortable train).

The toll road choice

A driver pays a 150-rupee toll to use an expressway that saves an hour. This reveals she values that hour at least at 150 rupees.

Thinking time savings aren't real economic benefits

They are often the biggest benefit of transport projects.

Key takeaways

Time is valued using wages, choices and surveys.
Leisure time is often valued at a fraction of wages.
Time savings drive transport project benefits.
Values vary by income, purpose and comfort.