Changing vehicle travel price sensitivities

There is growing interest in transportation pricing reforms to help achieve objectives such as congestion reductions, traffic safety and emission reductions. Their effectiveness is affected by the price sensitivity of transport, that is, the degree that travelers respond to price changes, measured as elasticities (the percentage change in vehicle travel caused by a percentage change in price). Lower elasticities (price changes have little impact on travel activity) imply that price reforms are not very effective at achieving objectives, higher prices significantly harm consumers, and rebound effects (additional vehicle travel caused by increased fuel efficiency) are small so strategies that increase vehicle fuel efficiency are relatively effective at conserving fuel. Higher elasticities imply that price reforms are relatively effective, consumers are able to reduce vehicle travel, and rebound effects are relatively large. Some studies found that price elasticities declined during the last quarter of the Twentieth Century but recent evidence suggests that transport is becoming more price sensitive. This report discusses the concepts of price elasticities and rebound effects, reviews information on vehicle travel and fuel price elasticities, examines evidence of changing price elasticities, and discusses policy implications.