Imagine a guy who, struck with a wild but charitable fever of generosity, decided to give away 100 gallons of tasty, free coffee every morning at a small downtown stand. During that entire first week, he struggled to give it all away before lunchtime and went home with quite a few gallons of leftover lukewarm coffee. In week two, he started seeing familiar faces each day from the nearby buildings, because people walking by know a good deal when they see one (the low price of free). Many of them returned each day and the coffee was gone by 11 a.m. By the third week, the word was out across downtown about the “crazy free coffee guy” and he started running out earlier each day. By the start of week four, people were coming from all over downtown and he had a line queued up waiting for him at 7 a.m. to ensure they got their free cup before work, and it was all gone before 9 a.m.
Say hello to “induced demand.”
Giving Something Away for Free Shapes the Behavior of Those Who Want It
It’s a fundamental principle of economics: Provide a tangible good at no cost that people value and the demand will outstrip supply.
Yet political leaders and transportation agencies refuse to believe that this same basic principle will apply when they spend billions to widen or expand highways in the name of “solving” traffic congestion in urban regions, and then give away all of that newly created space for free. They refuse to believe that anyone will take new trips on the newly freed-up highway space, that people will shift existing off-peaks trips to rush hour, that someone on transit might decide to return to driving (like thousands of people did during the pandemic), or that developers might take advantage of the new capacity to build yet more houses or retail on land that’s now more easily accessible.
They refuse to believe that this is possible, even when all of that expensive new highway space fills right up in a short period of time, wiping out any benefits and failing to deliver on all those promises of speedy commutes, improved travel times, and money in our pockets from all the “time savings.”