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

Richard Batley ()

Transportation, 2015, vol. 42, issue 2, 257-275

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

Keywords: Hensher equation; Business travel time savings; Value of the marginal product of labour (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s11116-014-9536-3

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