Chapter 14: Mode Choice Endogeneity in Value of Travel Time Estimation

It is often found that the value of travel time (VTT) is higher for car drivers than for public transport passengers. This paper examines the possible explanation that the difference could be due to a selection effect. The result is an inability to measure the effect of a mode difference, e.g., comfort, among transport modes. We specify a model that captures the mode difference through a mode dummy and use econometric techniques that allow treatment of the mode dummy as the result of an individual choice and hence endogenous. Using first a standard logit model we find a large and significant difference between the VTT for bus and car. When we control for endogeneity using instruments, the mode dummy becomes smaller and just significant. Our investigation is novel in that it allows for endogeneity in the estimation of VTT but like other applications using instruments the results indicate that we have difficulty in finding good instrumental variables.