Economics of Travel Demand
and Mode Choice
Why do people travel and how do
they choose their mode of travel?
What will you learn today?
• I will use mode choice to illustrate key
economic concepts, including:
– Derived Demand
– Utility
– Substitution
– Marginal vs. Fixed Costs and Benefits
– Externalities
– Short-Run vs. Long-Run
Derived Demand
• Demand for transportation is “derived
demand”
• People travel to work, shop, visit, and
recreate
– Few trips are taken for the sake of travel itself
• Changes in the reasons people travel lead
to changes in travel demand
Mode Choice: Bus, Bike, or Car?
Mode Choice: Assumptions
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•
•
•
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Lives 10 miles from work
Owns a car and bicycle
Car averages 20 mpg
Fuel is $4/gallon
Parking at work is free
Nearest transit stop is a 5-minute walk
Bus fare is $3/day
Mode Choice: Time & Cost
Round-Trip Travel Time & Cost
Time Costs (minutes)
Walk / Wait Time
Travel Time
Park / Walk / Change Time
Total Time Cost
Out-of-Pocket Costs
Fuel
Bus Fare (per day)
Parking
Total Out-of-Pocket Cost
Auto
Transit
Bike
0
40
5
45
10
80
10
100
0
90
10
100
$4.00
$3.00
$0.00
$4.00
$3.00
Which mode will you take to work?
$0.00
Utility Maximization
• Rational people maximize their “utility” or
satisfaction
• Utility is a function of price, time, quality,
and other values
• Utility maximization depends on
preferences and available information
• Different people can make different
choices based on their judgment of utility
Substitution
• Auto, transit, and bike are substitutes
– All of them get you to work
– Imperfect substitutes, because they have
different costs and attributes
• Demand for one mode depends on costs
and attributes of its substitutes
– Demand for transit affected by costs of auto
travel
Marginal Costs & Benefits
• Decisions are made based on marginal
costs and benefits
• Marginal costs and benefits are those that
vary with the decision
– For example: travel cost, travel time
• Fixed costs do not vary and are not
considered in the decision
– For example: car payment, car insurance
Externalities
• Some costs and benefits are “external” to
a decision
• Externalities are not taken into account by
market prices
• Examples:
– Pollution
– Congestion
Short Run vs. Long Run
• In the short-run, many costs are fixed
– Distance to work, car mileage, transit travel
time
• In the long-run, adjustments can affect
fixed costs
– Location
– Vehicle mileage
– Transit service provision
Changing Mode Choice: Short Run
• What changes in costs might affect mode
choice in the short run?
– Reduced or free transit fare?
– Increased gas prices?
– Increased parking cost?
– Worsening traffic congestion?
Changing Mode Choice: Short Run
Round-Trip Travel Time & Cost
Time Costs (minutes)
Walk / Wait Time
Travel Time
Park / Walk / Change Time
Total Time Cost
Out-of-Pocket Costs
Fuel
Bus Fare (per day)
Parking
Total Out-of-Pocket Cost
Auto
Transit
Bike
0
40
5
45
10
80
10
100
0
90
10
100
$4.00
$3.00
$0.00
$4.00
$3.00
$0.00
Changing Mode Choice: Long Run
• How might long-run adjustments affect
mode choice decision?
– Changes in location?
– Improved transit travel time?
– Improved vehicle mileage?
Changing Mode Share: Long Run
Round-Trip Travel Time & Cost
Time Costs (minutes)
Walk / Wait Time
Travel Time
Park / Walk / Change Time
Total Time Cost
Out-of-Pocket Costs
Fuel
Bus Fare (per day)
Parking
Total Out-of-Pocket Cost
Auto
Transit
Bike
0
40
5
45
10
80
10
100
0
90
10
100
$4.00
$3.00
$0.00
$4.00
$3.00
$0.00
Trip Chaining
• Many people “chain” trips
– Trips for work, shopping, school, etc. are
often combined
• Distance or nature of chained trips can
influence mode choice
– People may see child care or shopping as
requiring use of a car
Increasing Transit Ridership
• Wi-Fi in transit
• Education about benefits of transit
– Monetary savings
– Reduced pollution
– Less stress
– Link to active lifestyles
For more information
• David Helton
• (541) 726-2545
• David.I.Helton@odot.state.or.us