The “problem” of induced demand

An article on a highway project in the Pacific Northwest caught my eye:

However, the shiny new document leaves out an essential consideration when it comes to projecting the future effects of I-5 expansion in this long-constrained corridor, an omission that would have been much less noticed in a decade ago but which sticks out like a sore thumb now. It almost completely sidesteps the concept of induced demand, which posits that additional roadway capacity will prompt more trips as road users seek to take advantage of faster trips, ultimately cancelling out many of the promised benefits that come from adding that new capacity, especially congestion reduction.

Opponents of a new and bigger bridge connecting Vancouver, Washington and Portland, Oregon claim that it would cause more people to use the bridge.  Supporters of the project assume that there would be no increase in the number of cars crossing the bridge.  That strikes me as kind of odd.

Consider the following analogy.  A movie theatre is so popular that it often completely sells out.  The management committee is considering an expansion of the movie theatre.  One group claims that an enlarged movie theatre would attract more patrons.  The other group claims that enlargement of the theatre would not result in any increase in movie attendance.  Which of those groups would you expect to support expansion, and which would you expect to be opposed?  Do you see the problem?

Of course there are many differences between movie theaters and bridges, and I promise we’ll look at those differences.  But I first wanted people to consider how odd it is that the opponents of highway expansion projects are typically the same people that believe it would induce more demand for its service.

Supporters of bridge expansion are typically political leaders who wish to cater to their electorate.  There are two kinds of voters, those who pay attention to the bridge expansion issue, and those who do not.  I suspect that there is a strong correlation between voters who support bridge expansion and those who already use the bridge, if only because they are probably better informed about the situation than other voters.  When supporters of bridge expansion deny that there would be induced demand, they are implicitly suggesting that all of the benefits would go to existing users in terms of less traffic congestion.  But that outcome seems extremely unlikely, as it violates the law of demand.  When an increase in supply makes something cheaper (in terms of the opportunity cost of time), it leads to greater quantity demanded.  There would be induced demand.

Opponents of bridge expansion also have an incentive to cater to voters with the most intense interest in the issue.  They may wish to argue that the bridge expansion won’t do any good at all, as it would induce so much extra demand that traffic congestion would become just as bad as before.  But that argument also violates the law of demand!  If there were no reduction in traffic congestion, then what would induce any new drivers to start using the bridge?  (In fairness, the author of this article does not claim that induced demand would prevent any reduction in congestion, but I’ve seen others make that claim.)

One side is essentially arguing that demand curves are perfectly vertical, and the other is implicitly arguing that demand curves are perfectly horizontal.  In fact, demand curves slope downward. 

So what’s the answer?  Should the bridge be built?

Elsewhere in the article, the author makes it clear that his opposition to bridge expansion is linked to environmental concerns.  Ideally, you want to have a Pigovian toll to reflect any sort of traffic externalities, including congestion, pollution, global warming, suburban sprawl, etc.  If that toll were in place, then it would be easier to evaluate the project on a cost/benefit basis. 

(Although even in that case there might be other complications, such as indirect effects on the usage of other roads that do not have Pigovian tolls.  So I don’t mean to suggest that a Pigovian toll on the bridge completely solves the problem, rather that it makes it easier to evaluate the pros and cons of a new bridge.)

PS.  In previous posts I suggested that Vancouver, Washington was an attractive place for libertarians.  You can work in a state with no state income tax (except capital gains), and shop in a state with no sales tax.  And the Pacific Northwest tends to be pretty liberal on social issues like drugs, abortion and right to die.  So perhaps we also need to consider whether this bridge would allow for the expansion of the little libertarian paradise in southwest Washington. 

Here’s a picture of Vancouver, with beautiful Mt. Adams in the background.