Option Value of Public Transport: Methodology for Measurement and Case Study for Regional Rail Links in the Netherlands

Abstract

Transport option values can be interpreted in terms of a risk premium that individuals with uncertain demand are willing to pay over and above their expected user benefit for the continued availability of a transport facility. These values represent a benefit category not included in conventional transport appraisal. This paper describes a methodology for measuring the option value of public transport services, and its application to two regional railway links in the Netherlands. From an Internet‐based survey examining the value of regional rail services to residents, option values were concluded to be a potentially relevant benefit category in public transport policy appraisal. This survey included three different stated choice experiments to separate the willingness‐to‐pay for use, option use and non‐use. Significant option values could be obtained from the stated choice experiments for both regional railway links.

Acknowledgements

This research was partly funded by Prorail, the Dutch national railway infrastructure manager. The authors thank Prorail for making this study possible. They are also grateful to Peter Scheffer, Johan van Dalen and Ruud Thunnissen from Prorail for their valuable comments during the project. Finally, they would like to thank two anonymous reviewers for useful comments on an earlier draft of this paper.

Notes

1. In environmental economics, the option value concept has been a topic of theoretical debate on the sign of option values under different assumptions of uncertainties and risk aversion (for an overview, see Boardman et al., 2001). Theoretical studies suggest that for risk‐seeking individuals and inferior goods (when demand decreases with income), the option value should be seen as negative for demand‐ and supply‐side uncertainties. The present study assumes individuals to be averse to risk and rail transport to be a normal good. MuConsult (1992) shows that train use in the Netherlands increases with income, controlling for other variables such as car ownership, residential location and educational level. Hence, the option value of rail services is treated as a positive.

2. In the literature, the term ‘indirect benefits’ is sometimes also used to refer to wider economic benefits such as the productivity gains of firms‐benefits not being the direct transport benefits of a project but indirectly related to the project. This is, however, a very different benefit category.

3. This results in the following variation in monthly taxation: a 6 decrease when the entire link is closed and a [euro]7 increase when the rail frequency is doubled and new railway stations are introduced. In the choice experiments, a bandwidth among these values was used of a [euro]5 and a [euro]10 increase or decrease in the monthly local taxation.

4. The attribute ‘new railway stations’ involved two new stops on the Arnhem–Winterswijk link (i.e. at the villages Westervoort and Gaanderen) and seven new stops on the Leiden–Gouda link (i.e. Leiden Transferium A4, Zoeterwoude, Hazerswoude, Alphen a/d Rijn Lorentzweg, Boskoop Snijdelweg, Waddinxveen Coenencoop and Gouda Goudsepoort). The attribute ‘closure of railway stations’ involved the closure of six stops on the Arnhem–Winterswijk link (i.e. Arnhem Velperpoort, Duiven, Didam, Wehl, Doetinchem de Huet, Varsseveld and Aalten) and three on the Leiden–Gouda link (i.e. Waddinxveen Noord, Boskoop and Leiden Lammerschans).

5. The attribute level ‘current frequency’ was not significant for all respondent groups and was excluded from the model specification presented herein.

6. See note 5.