Measuring the value of transport time for inter-regional trade

This paper presents an approach to measuring the values of time cost for freight transportation, and examines its applicability through empirical analysis. We develop the method based on the hedonic approach by explicitly formulating how transport time is determined as market outcome. In the model, the freight charge, the price of transportation services, is determined through interaction in the transport market, where shippers demand and carriers supply transport services. We assume that shippers are willing to pay higher price for faster delivery, which requires additional cost for carriers. Consequently equilibrium freight charge tends to be higher for shorter transport time, such as express delivery fee in postal service. Output of transport service is a bundle of multiple attributes such as quantity, distance, and transport time, thereby freight charge is also a function of multiple attributes. Our model distinguish between the transport technology and firm's effort for reducing transport time: the former is exogenous for firms, and for the market. This formulation has a merit that the effects of technological change (including infrastructure improvement) are more rigorously evaluated: equilibrium transport time under new technology is determined in the market where transport firms choose the level of effort in response to technological change. We estimate the parameters of freight charge function, using microdata from the 2005 Net Freight Flow Census (NFFC), in which information on freight charge, weight, origin and destination, and transport time for individual shipment are obtained. Based on the estimated freight charge function, we obtain the values of transport time for shippers (VTTS) as implicit price in the hedonic theory. We further present a method to evaluate the welfare effect of time-saving technological change based on the hedonic approach. We obtain the estimates of value of time for various combinations of distance (d) and shipment size (weight, q). The value of time is larger as transport distance is shorter, or as shipment size is smaller. Around the sample mean (d = 200, q = 4), the value is 1,232Yen/hour (for time designated delivery) and 1,966 Yen/hour (without time designation). These values are smaller than those estimated by the willingness to pay method (2,606Yen and 1,972Yen) based on discrete choice model of expressway use. We apply the method to evaluate the benefit of time-reducing technological change (including infrastructure improvement) based on hedonic approach to evaluation of expressway construction. Then we compare the results with those obtained by the existing methods. The results suggest that the benefits calculated by our method tend to be larger than those based on the other methods.