Induced demand and rebound effects in road transport

This paper analyzes aggregate personal motor-vehicle travel within a simultaneous model of aggregate vehicle travel, fleet size, fuel efficiency, and congestion formation. We measure the impacts of driving costs on congestion, and two other well-known feedback effects affecting motor-vehicle travel: its responses to aggregate road capacity (“induced demand”) and to driving costs including those caused by fuel-economy improvements (“rebound effect”). We measure these effects using cross-sectional time series data at the level of US states for 1966 through 2004. Results show that congestion affects the demand for driving negatively, as expected, and more strongly when incomes are higher. We decompose induced demand into effects from increasing overall accessibility of destinations and those from increasing urban capacity, finding the two elasticities close in magnitude and totaling about 0.16, somewhat smaller than most previous estimates. We confirm previous findings that the magnitude of the rebound effect decreases with income and increases with fuel cost, and find also that it increases with the level of congestion.