Congestion and Induced Demand: A Real Economist’s Take
by Alvin MacIntoshJuly 8th, 2008, 5:06 pm
From time to time at Commuter Outrage, we like to go back to our roots to find the genesis of our outrage: Congestion.
Judd argued last month that California has failed miserably to match transportation infrastructure development with population growth. Some of our readers lodged a counterargument that drew heavily on the so-called induced demand “phenomenon”, i.e. that after the quantity of a good supplied increases, more of that good is consumed, and that this is somehow “entirely consistent with the economic theory of supply and demand”.
In my opinion as a free-market economist, this drivel belongs in the same trash can as supply-side economics. This is not “Field of Dreams”; just because you build it, doesn’t mean they’ll come. And even if they do come, all comers will be better off than before the roads were expanded.
I grew up in south Texas. There are hundreds of thousands of miles of rural farm and ranch roads that maybe see a handful of vehicles a day. The existence of these roads does not cause more people to drive on them.
When available supply does not meet current demand, shortage results. The key to alleviating congestion is to balance supply and demand, thereby eliminating the shortage. Induced demand would only apply if the current level of supply were actually sufficient to meet current demand. Congestion is proof that there is a shortage of highway throughput.
The turkeys bearing the standard of induced demand actually admit that “elasticity of traffic demand with respect to roadway expansion is between 0 and 1, indicating that a 1% increase in roadway expansion will generate less than a 1% increase in traffic demand”.
Let’s define road utilization as the number of miles driven divided by the number of available lane miles (a one-mile stretch of a two-lane road would be two lane miles). This gives us the number of times per year, on average, that a given lane mile of road is driven. In 1997 Americans drove 2.55 trillion miles over 8.24 million lane-miles of road, so each lane mile was utilized 309,617 times that year. In 2006, 3.01 trillion miles were driven over 8.42 million lane miles, for a utilization rate of 357,457. For the 10-year period 1997-2006, road utilization increased 15.5%, while the quantity of road supplied grew by 2.2% nationally. Put another way, Americas highways and byways are, net of all additions and expansions, 15.5% more congested than 10 years ago.
Now, back to demand elasticity for an example.
Let’s assume that this year there are 1 million lane miles and 350 billion miles driven, we’d have a utilization rate of 350,000 this year (roughly in line with utilization in 2006). Keeping with the 1% figure bandied about by the Econ-101 flunkies squawking about induced demand, let’s also assume that between this year and next year, the government expands the road network by 1%. Because demand for driving is somewhat inelastic (I’ll assume 0.9 – i.e. when supply increases 1%, demand increases 0.9%). So next year we’ll have 1.01 million lane miles and 353.1 billion miles driven. The increase in lane miles equates to a utilization rate of 349,653 – a net decrease in congestion of 0.1%, which was the whole reason for adding the additional lanes.
This means that not only does the expanded roadway accommodate the new drivers (in econ-speak, the marginal drivers), but the commute is better for everyone. In econ-speak, we are all on higher indifference curves. The additional drivers did not decide to take to the roads in order to punish the planet. Rather, being at least quasi-rational citizens, they drove the car to work because the reduced congestion made driving a better choice than however they got to work before. Not only are the new drivers better off because their commute has improved, but the other commuters are also better off because of the reduced congestion.
As another case in my point against the applicability of induced demand to the debate over how to alleviate traffic congestion, I’ll briefly address another example cited in Wikipedia’s treatment of induced demand. The case of the new London M25 ring road is a faulty premise. There was no supply of ring road. Because the road did not exist prior to early 1990s, the market for driving on the ring road also did not exist. It is therefore a fallacy to use this to support the intellectual puke trough that is induced demand.
Besides, no one holds a gun to anyone’s head and makes them drive on the new road. As I demonstrate above, people choose to drive on the new or expanded road because this makes them better off.
In any case, I’m no class warrior, but making driving more expensive hurts the middle and working classes more than anyone else. A major reason for sprawl is that many Americans cannot afford to buy homes suitable for raising families within a reasonable walking distance of a subway station or well-traveled bus route.
At the end of the day, people just need to get from where they live to where they work with some modicum of creature comforts, like air conditioning and maybe a little talk radio. If the government won’t act to expand the roads, it should expand mass transit. If that isn’t a viable option in a given area (geological limitations, NIMBYism, lack of market acceptance), the only recourse is to expand the roads. It doesn’t always have to be the highways, but something has to expand in order to accommodate the inevitable economic and population growth that is the manifest destiny of this country. Failing viable alternatives between now and 2050, it must be the highways.
Sorry, greeny weenies.
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Posted in Highways, Traffic Congestion |
In the short run I agree with you.
However, in the long run you can take into account the development that these roads cause. This is what I always assumed this concept referred to (although I could be wrong, I never really studied it and only talked about it in passing).
If you build a highway through an area, that will attract development that would not have been built in the area otherwise. If you assume that it doesn’t bring any new development to the metro area from elsewhere (i.e. I won’t move to New York from Texas because a new road is built through Westchester), than this development would have been at the expense of denser development near existing highways. Because these highways are already congested, and assuming there are viable public transit options in the area, the people housed in this new development would be more likely to take public transit.
For this group of people, it’s not like they’re not being served by this lack of a highway in a lower density area… They would have moved near the highway if it existed and this new development was concentrated there, and would move towards the old highway and take public transit in if the highway didn’t exist.
I also thought induced demand was applied towards the desire for less sprawl, i.e. the result of not building a new highway would be denser development in the region. I like how you equated public transit to highway infrastructure cost (i.e. in my example above, replace “new highway” with “new transit line”), the result would be the same, the area around the existing highway/transit line would be less dense. The only difference one could argue would be to say that new development along a transit line would tend to be closer to train stations than new development along a highway… Anyway I never thought of it like that and found that point pretty interesting!
Charley,
Thanks for the good feedback. You raise some good points.
As a preface, let me say that I can only address induced demand as its proponents define it.
Usually and historically – notwithstanding a few boondoggles like Alaska’s infamous Bridge to Nowhere – transportation infrastructure construction is a response to existing demand. Roads are built to connect two or more places that already exist. The demand to travel between these places already exists, but the existing infrastructure is not sufficient. People already go to these places, and when we improve the way in which people make these trips, everyone benefits. When we upgrade from a four-lane road with numerous traffic lights and unlimited access points to a even a four-lane limited access freeway, drivers benefit from, among other things, reduced travel times and the increased fuel efficiency that comes with uninterrupted operation at highway speeds.
As an example, consider the Dwight D. Eisenhower National System of Interstate and Defense Highways, which turned 60 this year. Ike identified a need to transport massive amounts of troops and materiel from one end of the country to another other in the event of a Soviet invasion. When Ike examined the existing highways, he found them wanting, and commissioned the Interstate Highway System in order to better meet the need.
Ultimately – and unfortunately – many of the issues about which Judd, Lewis, and I are outraged are long-run problems, like failing to expand transportation infrastructure at even roughly the same rate as population growth, much less economic growth. This is why we take such a hard line against the intellectually stagnant, burger-flipping NIMBYists and legislative buffoons who block the major improvements in transportation infrastructure this country needs. The point to which I will always return is that mass transit needs to be at least as convenient or cost-effective for the traveler as driving. Mass transit needs to be a choice made by rational individuals, not an compulsion thrust upon us by vocal lobbyists and heavy-handed bureaucrats.
Where did you study economics?
Preparing lecture notes for my masters courses on intelligent transportation systems, I came across this site. Although I understand the sentiment, there is overwhelming evidence that induced traffic demand is real and not some flawed argument used by politicians - you might want to do a literature check in transportation research A or B, Transportation or Transportation Science. People do change departure times, routes, modes, and in the long run activity patterns and land use because of improvements in the infrastructure (and many other reasons in the process), like it or not.
The question is wether or not it’s a bad thing - more demand does not necessarily imply (in the long run) less congestion but it does imply more consumer surplus. Unfortunately, more volume also means more external costs due to increased travel time unreliability, environmental damage and (law of numbers) more unsafety. Given the state of our planet and the contribution of the US (and China) to that state, you don’t have to be a greeny weenie to question wether expanding freeway capacity is a good idea.
Think man
Interesting how the “induced demand” theory is applied to roads - particularly those grade separated: aka freeways - but apparently nothing else.
If it’s such a “good” hypothesis, would not you suppose that you would see it applied to other things as well?
Obviously the induced demand argument has it’s limits, and the comparison of a rural road to someplace like Los Angeles is just silly. Places that attract masses of people with vibrant commercial and cultural activity and places in the middle of nowhere have little in common.
People are very much influenced by what the available and expedient modes of transit are between destinations they would like to travel. Many people might want to go enjoy some Hollywood night life on a Friday evening but decide not too because traffic congestion from where they live into that region is not worth it. If freeways and surface roads leading into Hollywood were expanded to decrease travel time, and parking added to reduce traffic costs and searching time, more people might decide to make the trip, because there are abundant points of interest there.
Speaking of limits, what about the limits in land space? Most freeways and arterial roads in Los Angeles are expanded to their limits, and the only way to increase road capacity would be to destroy homes and businesses. This would be expensive both in the costs of expansion but also in the costs to society and the economy by taking land with other already existing valuable uses and turning it over to moving cars. On the other hand expansion to rail could vastly increase the capacity to move people along a particular route with considerably less land use space then automobile infrastructure or in the case of subways no surface land space.
The West Side in Los Angeles is one of the most heavily car trafficked regions in the country, with the 10 and 405 freeways slowing to speeds below in-line skaters at peak hours (I know because I have witnessed skaters on the 10 freeway with my own eyes, while I was riding the freeway on my bicycle at about twice the speed of traffic flow). To get the capacity of people through that region who come to work, or to play at the coast, we simply do not have the land available to alleviate that much traffic with more lane expansion schemes. This why we need to reprioritize government subsides that we currently shovel into the failing automobile system into viable alternatives. People don’t train to Santa Monica because one doesn’t exist yet, it’s just been talk for decades. People don’t take the bus because it is stuck in the same mess as the cars, and with poor frequency and connecting transfer times.
For these reasons most people in LA stick to using the car as a first and often only choice of travel. I love cycling, but not everyone is physically able or dedicated enough to cross the streets of L.A. on a bike. We need a balanced transit system for all modes of travel, and right now it is very lopsided in favor of moving cars. I don’t buy the argument that we need to expand lanes on freeways and roads, we’ve done quite enough of that already with marginal progress at best and very little room to do anymore in many regions.