Induced demand
Encyclopedia
Induced demand, or latent demand, is 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, this idea has become important in the debate over the expansion of transport
ation 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
.
, a British road-traffic engineer and county surveyor
between 1924 and 1964, described the phenomenon is his 1969 book:
He went on to give an example of the observed effect following the opening of the Doncaster Bypass section of the A1(M) in 1961.
A journey on a road can be considered as having an associated cost or price (the generalised cost
, g) 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 generalised cost of every journey (by affecting the second "cost" mentioned in the previous paragraph). In fact, this is one of the key justifications for construction of new road capacity (the reduction in journey times).
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, illustrated below.
For roads or highways, the supply relates to capacity and the quantity consumed refers to vehicle-kilometres travelled. The size of the increase in quantity consumed depends on the elasticity of demand.
defined in the short term only. In other words, this figure between 0 and 1 assumes that, apart from the increased supply, all else is constant
, which is unlikely to be true in the long term.
In the short term, new demand arises from either people making trips they wouldn't have made before (because the cost of the trip has decreased), or from people retiming trips to nearer their preferred time (i.e. they can reduce schedule delay
). 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.
New demand may also come from those who had used public transport before a roadway expansion, now deciding to switch to car use.
In the long term, land use
patterns alter - e.g. new development occurs around the road with the new capacity, increasing demand for travel. Peoples' choice of home and workplace locations also alter because of the new road (and although this is to be expected from urban economics, it also constitutes induced travel, usually because people travel farther to get to work as a result of the new road, increasing overall levels of vehicle-kilometres). Increased employment along a road may result in homebuilding along the same road, attract more businesses in a positive feedback
loop. Eventually, the induced demand may cause road capacity to be reached (again).
In the UK, the idea of induced traffic was used as a grounds for protests against government policy of road construction in the 1970s, 1980s and early 1990s, until it became accepted as a given by the government as a result of their own SACTRA (Standing Advisory Committee on Trunk Road Assessment) study of 1994 http://www.dft.gov.uk/stellent/groups/dft_econappr/documents/divisionhomepage/031568.hcsp. However, despite the concept of induced traffic now being accepted, it is not always considered.
A classic example of induced demand was the construction of an orbital motorway around London
, the M25
, in the late 1980s and early 1990s. In the short term (almost from opening), the motorway became extremely busy and often congested (as planners underestimated the level of demand, because some was induced, and thus the road did not have high enough levels of capacity to accommodate it). In the long term (over a few years), new development occurred around the new motorway and people adjusted their home and work locations to depend upon it, further increasing demand.
, 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.
Propononents of road construction will note that the fact that there is additional travel indicates that the roadway construction or expansion is adding value to those users (consumer surplus).
This argument ignores that consumer surplus of a group of road users does not guarantee an increase in aggregate utility
. It also ignores that some negative externalities such as global pollution
often go unvalued in economic analyses
of road projects (some countries ignore these externalities altogether, and others evaluate them qualitatively).
Some roadway advocates note that because of underlying factors (e.g. population and income growth), traffic will grow anyway, whether or not freeways are expanded (this being the argument mentioned previously in relation to traffic forecasts). Thus, without widening, traffic would be even worse than it is, contributing even more pollution, something which occurred in Sydney, Australia, during the New South Wales state government's "No Freeways" era in the late 1970s and early 1980s. Environmentalists reply that the new induced traffic will generate more pollution
and exacerbate the greenhouse effect
more than leaving the road unbuilt, a theory that is with merit if public transport initiatives are not developed in accordance with the freeway construction such as the provisioning of a dedicated bus lane on the Sydney Harbour Bridge when the Sydney Harbor Tunnel was built.
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
; however, this idea has become important in the debate over the expansion of transport
Transport
Transport or transportation is the movement of people, cattle, animals and goods from one location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space. The field can be divided into infrastructure, vehicles, and operations...
ation 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
Urban sprawl
Urban sprawl, also known as suburban sprawl, is a multifaceted concept, which includes the spreading outwards of a city and its suburbs to its outskirts to low-density and auto-dependent development on rural land, high segregation of uses Urban sprawl, also known as suburban sprawl, is a...
.
Effect in transportation systems
Latent demand has been recognised by road traffic professionals for many decades. J. J. LeemingJ. J. Leeming
John Joseph Leeming was a British road engineer. He forwarded controversial ideas for the causes of, and remedies for, road crashes, including the notion that drivers should not always be assumed to be at fault.-Biography:...
, a British road-traffic engineer and county surveyor
County surveyor
1. A county surveyor is a public official in many counties of the USA. At the bottom of this page are working "External Links" as at 4 November 2011 to websites of a selection of such County Surveyor's departments. Most of these officials are elected on the partisan ballot to four-year terms...
between 1924 and 1964, described the phenomenon is his 1969 book:
He went on to give an example of the observed effect following the opening of the Doncaster Bypass section of the A1(M) in 1961.
Price of road travel
Generalised cost
In transport economics, the generalized cost is the sum of the monetary and non-monetary costs of a journey.Monetary costs might include a fare on a public transport journey, or the costs of fuel, wear and tear and any parking charge, toll or congestion charge on a car journey.Non-monetary costs...
, g) which includes the out-of-pocket cost
Out-of-pocket expenses
Out-of-pocket expenses are direct outlays of cash which may or may not be later reimbursed.In operating a vehicle, gasoline, parking fees and tolls are considered out-of-pocket expenses for the trip...
(e.g. fuel costs and tolls
Road pricing
Road pricing is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the specific road, or by the specific vehicle...
) and the opportunity cost
Opportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
of the time spent travelling, which is usually calculated as the product of travel time and the value of travellers' time
Value of time
In transport economics, the value of time is the opportunity cost of the time that a traveller spends on his/her journey. In essence, this makes it the amount that a traveller would be willing to pay in order to save time, or the amount they would accept as compensation for lost time.One of the...
.
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 generalised cost of every journey (by affecting the second "cost" mentioned in the previous paragraph). In fact, this is one of the key justifications for construction of new road capacity (the reduction in journey times).
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
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
theory, illustrated below.
For roads or highways, the supply relates to capacity and the quantity consumed refers to vehicle-kilometres travelled. The size of the increase in quantity consumed depends on the elasticity of demand.
Elasticity of traffic demand
Research indicates that the 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. However it is greater than 0%, so new roadway construction will result in some additional traffic that would not have occurred but for the new capacity. In the long term, however, traffic demand may increase by more than 1%, since elasticity of demand is a partial derivativePartial derivative
In mathematics, a partial derivative of a function of several variables is its derivative with respect to one of those variables, with the others held constant...
defined in the short term only. In other words, this figure between 0 and 1 assumes that, apart from the increased supply, all else is constant
Ceteris paribus
or is a Latin phrase, literally translated as "with other things the same," or "all other things being equal or held constant." It is an example of an ablative absolute and is commonly rendered in English as "all other things being equal." A prediction, or a statement about causal or logical...
, which is unlikely to be true in the long term.
In the short term, new demand arises from either people making trips they wouldn't have made before (because the cost of the trip has decreased), or from people retiming trips to nearer their preferred time (i.e. they can reduce schedule delay
Schedule delay
Schedule delay is a term in transport modelling which refers to a difference between a desired time of arrival or departure and the actual time. Despite the use of "delay", it can refer to a difference in either the early or late direction....
). 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.
New demand may also come from those who had used public transport before a roadway expansion, now deciding to switch to car use.
In the long term, land use
Land use
Land use is the human use of land. Land use involves the management and modification of natural environment or wilderness into built environment such as fields, pastures, and settlements. It has also been defined as "the arrangements, activities and inputs people undertake in a certain land cover...
patterns alter - e.g. new development occurs around the road with the new capacity, increasing demand for travel. Peoples' choice of home and workplace locations also alter because of the new road (and although this is to be expected from urban economics, it also constitutes induced travel, usually because people travel farther to get to work as a result of the new road, increasing overall levels of vehicle-kilometres). Increased employment along a road may result in homebuilding along the same road, attract more businesses in a positive feedback
Positive feedback
Positive feedback is a process in which the effects of a small disturbance on a system include an increase in the magnitude of the perturbation. That is, A produces more of B which in turn produces more of A. In contrast, a system that responds to a perturbation in a way that reduces its effect is...
loop. Eventually, the induced demand may cause road capacity to be reached (again).
Induced demand and transport planning
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).In the UK, the idea of induced traffic was used as a grounds for protests against government policy of road construction in the 1970s, 1980s and early 1990s, until it became accepted as a given by the government as a result of their own SACTRA (Standing Advisory Committee on Trunk Road Assessment) study of 1994 http://www.dft.gov.uk/stellent/groups/dft_econappr/documents/divisionhomepage/031568.hcsp. However, despite the concept of induced traffic now being accepted, it is not always considered.
A classic example of induced demand was the construction of an orbital motorway around London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, the M25
M25 motorway
The M25 motorway, or London Orbital, is a orbital motorway that almost encircles Greater London, England, in the United Kingdom. The motorway was first mooted early in the 20th century. A few sections, based on the now abandoned London Ringways plan, were constructed in the early 1970s and it ...
, in the late 1980s and early 1990s. In the short term (almost from opening), the motorway became extremely busy and often congested (as planners underestimated the level of demand, because some was induced, and thus the road did not have high enough levels of capacity to accommodate it). In the long term (over a few years), new development occurred around the new motorway and people adjusted their home and work locations to depend upon it, further increasing demand.
Mitigating the induction of demand
Induced traffic can be avoided if the generalised cost of travel does not decrease when new road capacity is added (known as "locking in" the benefits (e.g. journey time reductions) of new capacity). This may be achieved through:- Road pricingRoad pricingRoad pricing is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the specific road, or by the specific vehicle...
- i.e. the user pays for the journey time reduction - Increasing the cost of parking, by limiting parking spaces. This has been done with success in Sydney, Australia.
- Allocation of the new road space to particular users, e.g. using HOV lanes - the generalised cost of travel for some users will remain similar, but the cost for particular users will decrease, encouraging a shift to that use. HOV or multiple occupancy lanes are the classic example, an example being the widening of the M1 motorwayM1 motorwayThe M1 is a north–south motorway in England primarily connecting London to Leeds, where it joins the A1 near Aberford. While the M1 is considered to be the first inter-urban motorway to be completed in the United Kingdom, the first road to be built to motorway standard in the country was the...
to the north of LondonLondonLondon is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, where the extra capacity will be used for an HOV lane during the peaks. However, HOV lanes which are additional to existing capacity do result in an induced rise in overall traffic, because the shift of HOVs to the new lane releases capacity in the existing lanes, reducing the generalised cost of journeys in those lanes and thus increasing demand. - ZoningZoningZoning is a device of land use planning used by local governments in most developed countries. The word is derived from the practice of designating permitted uses of land based on mapped zones which separate one set of land uses from another...
to prevent excess development of new areas served by increased road capacity has been proposed as a solution; however, municipalities often lack the power or the will to counter development interests. - Increasing the cost of travel, for example by increasing fuel excises or car registration costs.
- Increasing the cost of drivers licenses in certain undesirable motor vehicle classes (such as SUVs), while decreasing costs for more desirable modes of transportation (such as buses).
Reduced demand (the inverse effect)
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 means that theoretically, in the long term, 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 behaviour to compensate - for example, people might stop making particular trips, retime their trips to less congested times or switch to public transportPublic transport
Public transport is a shared passenger transportation service which is available for use by the general public, as distinct from modes such as taxicab, car pooling or hired buses which are not shared by strangers without private arrangement.Public transport modes include buses, trolleybuses, trams...
, depending upon the values of those trips or of the schedule delay
Schedule delay
Schedule delay is a term in transport modelling which refers to a difference between a desired time of arrival or departure and the actual time. Despite the use of "delay", it can refer to a difference in either the early or late direction....
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
Florence
Florence is the capital city of the Italian region of Tuscany and of the province of Florence. It is the most populous city in Tuscany, with approximately 370,000 inhabitants, expanding to over 1.5 million in the metropolitan area....
, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
.
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.
The debate
Many environmentalists believe that by encouraging development many kilometres away from jobs and services, freeways contribute to increasing traffic flows, and thus the freeway ends up just as congested as previously, thus requiring the freeway to be widened (again). The evidence is that the congestion will not be as bad as prior to the new construction, but that traffic congestion will not simply disappear.Propononents of road construction will note that the fact that there is additional travel indicates that the roadway construction or expansion is adding value to those users (consumer surplus).
This argument ignores that consumer surplus of a group of road users does not guarantee an increase in aggregate utility
Utility
In economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....
. It also ignores that some negative externalities such as global pollution
Pollution
Pollution is the introduction of contaminants into a natural environment that causes instability, disorder, harm or discomfort to the ecosystem i.e. physical systems or living organisms. Pollution can take the form of chemical substances or energy, such as noise, heat or light...
often go unvalued in economic analyses
Cost-benefit analysis
Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
of road projects (some countries ignore these externalities altogether, and others evaluate them qualitatively).
Some roadway advocates note that because of underlying factors (e.g. population and income growth), traffic will grow anyway, whether or not freeways are expanded (this being the argument mentioned previously in relation to traffic forecasts). Thus, without widening, traffic would be even worse than it is, contributing even more pollution, something which occurred in Sydney, Australia, during the New South Wales state government's "No Freeways" era in the late 1970s and early 1980s. Environmentalists reply that the new induced traffic will generate more pollution
Pollution
Pollution is the introduction of contaminants into a natural environment that causes instability, disorder, harm or discomfort to the ecosystem i.e. physical systems or living organisms. Pollution can take the form of chemical substances or energy, such as noise, heat or light...
and exacerbate the greenhouse effect
Greenhouse effect
The greenhouse effect is a process by which thermal radiation from a planetary surface is absorbed by atmospheric greenhouse gases, and is re-radiated in all directions. Since part of this re-radiation is back towards the surface, energy is transferred to the surface and the lower atmosphere...
more than leaving the road unbuilt, a theory that is with merit if public transport initiatives are not developed in accordance with the freeway construction such as the provisioning of a dedicated bus lane on the Sydney Harbour Bridge when the Sydney Harbor Tunnel was built.
See also
- ExternalityExternalityIn economics, an externality is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit...
- Lewis-Mogridge PositionLewis-Mogridge PositionThe Lewis–Mogridge Position, named after D. Lewis and M. J. H. Mogridge, was formulated in 1990. It captures the observation that the more roads are built, the more traffic there is to fill these roads. Speed gains from some new roads can disappear within months if not weeks...
- Say's lawSay's lawSay's law, or the law of market, is an economic principle of classical economics named after the French businessman and economist Jean-Baptiste Say , who stated that "products are paid for with products" and "a glut can take place only when there are too many means of production applied to one kind...
- Positive feedbackPositive feedbackPositive feedback is a process in which the effects of a small disturbance on a system include an increase in the magnitude of the perturbation. That is, A produces more of B which in turn produces more of A. In contrast, a system that responds to a perturbation in a way that reduces its effect is...
- Traffic flowTraffic flowTraffic flow, in mathematics and civil engineering, is the study of interactions between vehicles, drivers, and infrastructure , with the aim of understanding and developing an optimal road network with efficient movement of traffic and minimal traffic congestion problems.-History:Attempts to...
- Schedule delaySchedule delaySchedule delay is a term in transport modelling which refers to a difference between a desired time of arrival or departure and the actual time. Despite the use of "delay", it can refer to a difference in either the early or late direction....
External links
- Giles Duranton, Matthew A. Turner (2010), The Fundamental Law of Road Congestion: Evidence from US cities, University of Toronto
- UK Department for Transport guidance on modelling induced demand
- A statistical analysis of induced travel effects in the US mid-Atlantic region (Fulton et al.), Journal of Transportation and Statistics, April 2004 (PDF)
- Todd Litman (2001), “Generated Traffic; Implications for Transport Planning,” ITE Journal, Vol. 71, No. 4, Institute of Transportation Engineers (www.ite.org), April, 2001, pp. 38-47.