June 18, 2014 4:26PM

Debunking the Induced‐​Demand Myth

"Building bigger roads actually makes traffic worse," asserts Wired magazine. "The reason you're stuck in traffic isn't all these jerks around you who don't know how to drive," says writer Adam Mann; "it's just the road that you're all driving on." If only we had fewer roads, he implies, we would have less congestion. This "roads-induce-demand" claim is as wrong as Wired's previous claim that Tennessee fiscal conservatives were increasing Nashville congestion by banning bus-rapid transit, when actually they were preventing congestion by banning the conversion of general lanes to dedicated bus lanes.

In support of the induced-demand claim, Mann cites research by economists Matthew Turner of the University of Toronto and Gilles Duranton of the University of Pennsylvania. "We found that there’s this perfect one-to-one relationship," Mann quotes Turner as saying. Mann describes this relationship as, "If a city had increased its road capacity by 10 percent between 1980 and 1990, then the amount of driving in that city went up by 10 percent. If the amount of roads in the same city then went up by 11 percent between 1990 and 2000, the total number of miles driven also went up by 11 percent. It’s like the two figures were moving in perfect lockstep, changing at the same exact rate." If this were true, then building more roads doesn't make traffic worse, as the Wired headline claims; it just won't make it any better.

However, this is simply not true. Nor is it what Duranton & Turner's paper actually said. The paper compared daily kilometers of interstate highway driving with lane kilometers of interstates in the urbanized portions of 228 metropolitan areas. In the average metropolitan area, it found that between 1983 and 1993 lane miles grew by 32 percent while driving grew by 77 percent. Between 1993 and 2003, lane miles grew by 18 percent, and driving grew by 46 percent.

That's hardly a "perfect one-to-one relationship."

The paper also calculated the elasticities of driving in relationship to lane kilometers. An elasticity of 2 would mean a 10 percent increase in lane miles would correspond with a 20 percent growth in driving; an elasticity of 1 would mean that lane miles and driving would track closely together. The paper found that elasticities were very close to 1 with standard errors of around 0.05. Even though this is contradicted by the previously cited data showing that driving grew much faster than lane miles, this is the source of Turner's "perfect one-to-one relationship."

I have a serious problem with this result, mainly because my analysis of driving and highway capacity data for the 101 largest urban areas from 1982 through 2011 produces very different results. Yes, there is a correlation between an increase in road capacity and an increase in driving. But the correlation is far from perfect and it is very far from one-to-one.

Looking at the same years as Duranton & Turner, in more than 90 percent of urban areas, driving grew far faster than lane miles. On average, driving grew more than twice as fast as lane miles. But in Boston between 1983 and 1993, freeway capacities grew by less than 1 percent, while driving grew by more than 35 percent. In Madison, capacities grew by 35 percent, while driving grew by less than 20 percent. The wide range in differences between urban areas suggests that, not only are Duranton & Turner's elasticities wrong, their standard errors are far too low. (You can check my results by downloading Texas Transportation Institute data for 101 urban areas.)

One source of error in Duranton & Turner's paper may be in their definition of urbanized area. They first collected data for metropolitan areas (which include entire counties that contain urban areas), then estimated the share of driving within those metropolitan areas that takes place in the urbanized portions. Their estimate that well under half of all driving is in the urbanized areas does not seem credible considering the non-urbanzed portions are, by definition, rural and house few people and businesses. By comparison, the data I used are based on state highway bureau estimates of driving and lane miles within urbanized areas.

If it were true, as Mann claims, that capacity generates its own demand, then freeways would be equally congested all over the country. Yet this is far from true. While Los Angeles freeways support more than 22,000 daily miles of driving per lane mile, Pittsburgh freeways host less than 9,000 miles per lane mile. Nor are the numbers consistent over time within an urban area, as Duranton & Turner's elasticities would predict. Instead, many urban areas, including Miami, Las Vegas, and Sacramento, saw miles of driving per lane mile more than double between 1983 and 2003; the average growth was 50 percent, and some grew less than 20 percent, which again suggests that both elasticities and standard errors are much different than found by Duranton & Turner.

So Duranton & Turner's numbers appear to be wrong, and Wired overstated those numbers anyway. But let's say it were true that there is a perfect one-to-one relationship between driving and highway capacity, and further stipulate that increasing capacity leads to increased driving (rather than the other way around, which is equally credible if highway engineers are trying to keep up with demand). Is that a bad thing?

We know that every car on the road has someone in it who is going somewhere that is important to them. Increasing the number of cars on the road means more people are getting to do things that are important to them. Provided we aren't subsidizing that travel (and, as I've shown before, subsidies per passenger mile are small and probably zero for freeways), then increasing highway capacity leads to net economic benefits because it generates travel that wouldn't have taken place otherwise.

By comparison, building expensive transit systems aimed at getting people out of their less-expensive cars generates zero economic benefits if it generates no new travel. Only new travel generates economic benefits, so people who argue that new roads induce new travel are actually arguing that new roads create economic benefits.

If congestion is the issue, then--as Mann briefly mentions--the solution is congestion pricing. But Mann doesn't understand the difference between true congestion pricing and New York City's proposal for cordon pricing. Cordon pricing is more a way of raising revenue to fund urban boondoggles than a way of relieving congestion.

Even UC Berkeley planning professor Robert Cervero believes that the induced demand argument is "wrong headed." "Road investments by themselves do not increase volumes," he writes. "Only by conferring a benefit, like faster speeds, will traffic increase." Provided that benefit is greater than the cost--something that could be assured, Cervero says, through proper pricing of roads--then it is a good thing.

That's why I support, not new road construction, but better road pricing. If congested freeways are congestion-priced and revenues exceed costs, including the costs of maintenance, the extra revenues should be spent building new highway capacity. This will help restore America's transportation system to be, as it once was, the best in the world.