Abstract:
This paper examines the effect of road capacity on car usage. Previous work hypothesized a ‘fundamental law of road congestion’—a one-for-one response of car usage to road capacity expansions. I use administrative microdata from Israel to document systematic variation in this effect, and explore the underlying mechanisms driving it. The effect is greater in more urban regions, is mainly due to the extensive margin, and is mostly driven by young families with low-medium income purchasing a second car for the household. These results align with a simple theoretical model introducing car ownership choice to the consumer’s problem.
JEL classification: R41, R48
Keywords: Congestion, Fundamental Law, Roads, Urban transportation