Induced Demand

Induced demand

Price elasticity of demand

Induced demand, or latent demand, refers to the phenomenon that after supply increases, more of a good is consumed. This is entirely consistent with the economic theory of supply and demand; however, the idea has become important in the debate over the expansion of transportation systems, and is often used as an argument against widening roads, such as major commuter roads. It is considered by some to be a contributing factor to urban sprawl.

Latent demand has been recognized by road traffic professionals for many decades. J. J. Leeming, a British road-traffic engineer and county surveyor between 1924 and 1964, described the phenomenon is his 1969 book: ‘Motorways and bypasses generate traffic, that is, produce extra traffic, partly by inducing people to travel who would not otherwise have done so by making the new route more convenient than the old, partly by people who go out of their direct route to enjoy the greater convenience of the new road, and partly by people who use the towns bypassed because they are more convenient for shopping and visits when through traffic has been removed.’

A journey on a road can be considered as having an associated cost or price which includes the out-of-pocket cost (e.g. fuel costs and tolls) and the opportunity cost of the time spent travelling, which is usually calculated as the product of travel time and the value of travellers’ time. When road capacity is increased, initially there is more road space per vehicle travelling than there was before, so congestion is reduced, and therefore the time spent travelling is reduced – reducing the opportunity cost of every journey. In fact, reducing travel time is one of the key justifications for construction of new road capacity.

A change in the cost (or price) of travel results in a change in the quantity consumed. This can be explained using the simple supply and demand theory. For roads or highways, the supply relates to capacity and the quantity consumed refers to vehicle-miles travelled. The size of the increase in quantity consumed depends on the elasticity of demand. If demand for a good or service responds quickly to changes in price it is considered elastic. Transportation however, is considered inelastic because many people require it regardless of price. Because of this, the effects of increasing road sizes can be delayed. A 1.0% saving in travel time will generate an additional 0.5% increase in traffic within the first year, but in the longer-term, a 1.0% saving in travel time will result in a 1.0% increase in traffic volume.

In the short term, increased travel on new road space can come from one of two sources: diverted travel and induced traffic. Diverted travel occurs when people divert their trip from another road (change in route) or retime their travel (change in timing). For example, people might travel to work earlier than they would otherwise like, in order to avoid peak period congestion – but if road capacity is expanded, peak congestion is lower and they can travel at the time they prefer. Induced traffic also occurs when new automobile trips are generated (e.g. when people choose to travel by car instead of public transport, or decide to travel when they otherwise would not have).

Shortening travel times can also encourage longer trips as reduced travel costs encourage people to choose farther destinations. Although this may not increase the number of trips, it increases vehicle-miles travelled. In the long term, this effect alters land use patterns as people choose homes and workplace locations farther away than they would have without the expanded road capacity. These development patterns encourage automobile dependency which contributes to the high long-term demand elasticities of road expansion.

Although planners take into account future traffic growth when planning new roads (this often being an apparently reasonable justification for new roads in itself – that traffic growth will mean more road capacity is required), this traffic growth is calculated from increases in car ownership and economic activity, and does not take into account traffic induced by the presence of the new road (i.e. it is assumed that traffic will grow, regardless of whether a road is built or not).

Just as increasing road capacity reduces the cost of travel and thus increases demand, the reverse is also true – decreasing road capacity increases the cost of travel, so demand is reduced. This observation, for which there is much empirical evidence, has been called Disappearing Traffic, also traffic evaporation or traffic suppression. So the closure of a road or reduction in its capacity (e.g. reducing the number of available lanes) will result in the adjustment of traveller behavior to compensate – for example, people might stop making particular trips, condense multiple trips into one, retime their trips to a less congested time, or switch to public transport, walking or bicycling, depending upon the values of those trips or of the schedule delay they experience.

Reduced demand has been demonstrated in a number of studies associated with bridge closings (to be repaired) or major roads rehabilitation projects. These studies have demonstrated that the total volume of traffic, considering the road or bridge closed and alternative roads which this traffic is diverted through, is lower than that in the previous situation. In fact, this is an argument to convert roads previously open to vehicle traffic into pedestrian areas, with a positive impact on the environment and congestion, as in the example of the central area of Florence, Italy. Similarly, reducing public transit services will reduce to some extent the use of those facilities, where trips again may be abandoned or switched to private transport.

 

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