Drivers’ Rising Price Elasticity

A recent paper from Todd Litman at the Victoria Transport Policy Institute shows that drivers have become more sensitive to changes in the price of driving (and gasoline) in recent years.

Recent estimates of the long-run elasticity of driving are between -0.4 and -0.6, meaning that a 10% increase in the cost of driving should decrease miles driven by 4-6% over time.

There are several policy implications of rising elasticity:

1. People are more able to adjust their driving habits in response to changing prices, so pricing measures such as gas taxes, parking fees, and Pay-as-you-drive pricing are becoming more effective, and they are also more fair to the poor, who are likely to reducing driving more with an increase in price.

2. Vehicle efficiency standards will be less effective at cutting gasoline consumption due to the rebound effect: as the cost of driving drops with increased vehicle efficiency, people will drive more, partly offsetting the gasoline savings.

You can read the full paper here: http://www.vtpi.org/VMT_Elasticities.pdf

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3 Comments

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