Valuing the Way Home | Marvin Germo

Valuing the Way Home

By: Marvin Germo | July 4, 2014

My good friend, Ateneo Economics Professor, the former President of the Philippine Economic Society and #ICON2014 speaker Alvin Ang shares the cost and impact of time if not valued properly.  This is something we can all apply for work, business, and our personal investments.

Enjoy!

Jeepneys

I always wonder how ordinary Filipinos can join the frenzy of investments that is so affordable and accessible nowadays.  My training in Economics always point me back to two very important concepts – opportunity costs and incentives – in making this work.  Let me cite a very personal example.  This evening after a long day of meetings in Makati, where I have never driven on a weekday,  I trekked for home.  The bus ride was smooth and I was near the LRT station in Buendia in 15 minutes.  But lo and behold – the lines just snaked its way down to the corner of Taft and Buendia.  So I decided to take a jeepney instead to go to Blumentritt LRT in Manila – anyway, I have not done this for a decade now.  Besides, there’s no need to hurry home as I had a heavy merienda.  The time was 7.20 pm.  I guessed that it would take me at most 45 minutes considering the light traffic and the fare which is 16 pesos or a peso more expensive than the LRT ride.

 Was my decision correct? I was basing my decision on my value of time.  The value of my time is the opportunity cost that I will lose while taking the jeepney.  Also, since there’s nothing planned for the night – there’s no incentive for me to get home early.  Unfortunately, the jeepney took all of an hour and a half or double my expected time to reach Blumentritt.  Worst, the LRT could have just taken me 30 minutes max for the same distance.  What went wrong?  Actually, there was nothing wrong.  What was happening was a serious disalignment of incentives and opportunity costs.  For the jeepney driver, the opportunity cost is an empty space in the jeepney.  He does not understand that stopping for one potential passenger makes him lose more in terms of time.  He is not alone in this situation as all jeepney drivers seem to behave the same.  They all seem to be responding to a common incentive which is to fill the jeepney regardless of the time.   This is a serious flaw in valuing their incentives.  Every driver sees the same fixed value of incentive in a passenger without valuing the incentives of the other passengers and other drivers on the street.  Hence, a CEO tailing a jeepney will lose a lot since their valuation of time is miles apart.  This too shows how far we need to improve basic economic literacy to help improve traffic and street discipline.  Of course, this goes beyond the jeepneys, but to other wage earners whose valuation of time seems much better than me.  They who waited at the LRT station probably got home at least 30 minutes earlier than me.

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