Understanding Transport Demands and Elasticities Victoria Transport Policy Institute
induces vehicle travel (Litman 2001). Hymel, Small and Van Dender (2010) found that the elasticity of vehicle use with respect to road lane-miles is 0.037 in the short run and 0.186 in the long run. Both Gillingham (2010) and Guo, et al. (2011) found that vehicle travel is more price sensitive for residents of urban, transit-accessible areas than for comparable households in automobile dependent areas. There is also evidence that vehicle travel demand has peaked in most industrialized countries (Millard-Ball and Schipper 2010; Metz 2012), and demand for alternatives is increasing (Litman 2006; Pearce 2011). This may make vehicle travel more price sensitive, particularly if the quality of alternative modes improves. For this analysis it is also interesting to compare U.S. conditions with other countries. Most economically developed countries have much higher fuel prices than the U.S. For example, in 2010, gasoline prices averaged $0.76 per liter in the U.S., $1.60 in Japan, $1.90 in Germany, $1.92 in the U.K., and $2.12 in Norway (GIZ 2011). Since elasticities are normally calculated based on percentage changes, fuel price elasticities will appear larger in these countries than in the U.S. For example, a $0.25 per liter price increase represents a 33% change in the U.S. but only 13% in the U.K., although the cost burden relative to consumers’ incomes is similar in both countries (it is somewhat larger in the U.K. due to somewhat lower incomes). This creates an illusion that U.S. motorists are less sensitive to fuel prices than motorists in other countries. For example, if a $0.25 per liter fuel price change caused a 10% reduction in vehicle travel in both U.S. and the U.K., this would indicate an elasticity of -0.3 in the U.S. but -0.77 in the U.K.
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