Review of Income and Price Elasticity: Measuring their value

Daniel Graham and Stephen Glaister
Centre for Transport Studies
Imperial College of Science, Technology and Medicine

Final Report

July 18th 2002

Executive Summary

This report is concerned with road traffic-related demand elasticities. Its purpose is to provide a solid understanding of these elasticities, the relationships between them, and a critical review of the studies that have attempted to estimate them. The information presented in this report is derived from an extensive review of the international literature on road traffic and fuel demand. From this review we have sought to identify the magnitude of the relevant elasticities and to highlight the range of estimated values that are found across studies. We have also distinguished the elasticities by traffic types or by different definitions of cost and price. To provide a structure for our discussion of different road traffic related elasticities we have developed a simple decomposition of the main determinants of road traffic demand. This work gives a framework for our analysis and has been helpful in allowing us to understand the various different factors that work together to create overall road traffic responses. It has also allowed us to determine some relationships between different elasticity measures, for instance, between price and cost elasticities and between fuel consumption and traffic volume elasticities.

A separate aspect of our review has been to understand differences in methodology and in the data used in road traffic demand studies. We have constructed a database of elasticity estimates that incorporates a wide range of information about how these estimates were obtained. The literature provides a range of models that differ with respect to the form of demand function, the treatment of time, the countries and dates studied, the structure of the error component, and the estimation method; for cross-section, time-series, or panel data. We use information such as this to explore the influence of methods and data on the magnitude of elasticity estimates.

The report is structured as follows. First, we outline a framework describing the determinants of road traffic demand, and then go on to use this framework to describe relationships between distinct elasticities. The next section provides a survey of the international literature on road traffic related elasticities. Estimates from the survey are then used to provide an empirical evaluation of the main determinants of road traffic demand as set out in our framework. The remaining sections of the report are concerned with factors underpinning the variation in reported estimates. From the literature survey, we discuss the different types of models and data that have been used in road traffic demand research and construct a typology of studies on this basis. The final section uses information about model types, data types, and estimation techniques to determine influences on the magnitude of reported estimates.

The full report in PDF format is available as a download at the foot of this page.