Description:

Description:

In cities with urban tolls, the price elasticity of demand is much larger when tolls are implemented than when tolls are raised. Similarly, some argue for fare-free on the grounds it would greatly raise ridership. This “Large Elasticity at Introduction” (LEI) is surprising, because no standard demand function has elasticity shrink with price. I formalize three explanations: transaction costs; the zero-price effect; and the idea that “price-sensitive users” get tolled off first. I propose an idea with broad equity implications: enacting even low tolls might alleviate a large share of the externalities that higher, optimal tolls do.

Bio:

Lewis Lehe is an assistant professor in the Department of Civil and Environmental Engineering at University of Illinois Urbana-Champaign. His Urban Traffic and Economics Lab focuses on the economics of travel in cities. He holds MS and PhD degrees in civil engineering from UC Berkeley, and an MA in Transport Economics from the University of Leeds. He is the creator of trafficvis.com, which hosts games to teach transportation engineering.

Paper citation:

Lehe, L. and Devunuri, S. (2021). “Large Elasticity at Introduction.” Research in Transportation Economics, (in press). https://doi.org/10.1016/j.retrec.2021.101116