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Driving time, productivity, and the Fundamental Law of Road Congestion


  • Jesús Rodríguez

    () (Department of Economics, University Pablo de Olavide)

  • José L. Torres

    () (Department of Economics, University of Málaga)


Road congestion is a negative externality associated to automobile use and can negatively affects drivers’ utility in several directions, such as delay time and wasted fuel, but also can have a negative impact on aggregate productivity. This paper develops a Dynamic Stochastic General Equilibrium model to study the interactions between roads, traffic, congestion and productivity over the business cycle. In our model households receive services from vehicles, depending on the flow kilometers driving and on the stock of cars, and they do not take into account their own impact on congestion, which also depends on the stock of roads. Following a positive aggregate productivity shock, traffic density and congestion tend to rise, so dampening its positive effects on aggregate activity. The model is then used to study the process behind the so-called ”Fundamental Law of Highways Congestion”, which states that an increase in the stock of roads produces a traffic density rise of same proportion, thus leaving congestion unaffected in the long run. Our model economy reproduce a rise in output in response to a road capacity expansion and predicts a traffic flow elasticity of 0.172, as a direct consequence of the positive impact of the higher stock of roads on economic activity. Finally, we derive a Pigouvian tax schedule that internalizes the social costs of congestion.

Suggested Citation

  • Jesús Rodríguez & José L. Torres, 2018. "Driving time, productivity, and the Fundamental Law of Road Congestion," Working Papers 2018-02, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
  • Handle: RePEc:mal:wpaper:2018-2

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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Solving Traffic Congestion: A Plan for New York City
      by Jason Barr in Skynomics Blog on 2019-05-16 12:35:07

    More about this item


    Road traffic; Congestion; The Fundamental Law of Road Congestion; Dynamic General Equilibrium model;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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