If you build it, they will drive: Measuring induced demand for vehicle travel in urban areas

This paper examines the causal link between highway capacity and the volume of vehicle travel in US urban areas. Estimates from a dynamic panel model suggest that highway capacity expansion generates an exactly proportional increase in vehicle travel. Moreover, induced vehicle travel is expected to revert traffic speeds to pre-expansion levels in approximately five years. To address the simultaneous relationship between lane mileage and highway capacity, this paper develops an identification strategy to account for possible endogeneity bias. A set of instrumental variables measures the degree of influence that state delegations have had on key transportation committees in the US congress. The instruments strongly correlate with highway capacity and are plausibly exogenous, considering the idiosyncratic legislative process in the US. These findings cast doubt on the effectiveness of expanding highways to eliminate traffic congestion, as the speed-related benefits of new capacity tend to be short-lived.