Carpooling and Driver Responses to Fuel Price Changes: Evidence from Traffic Flows in Los Angeles

Understanding how drivers respond to fuel price changes has important implications for highway congestion, accidents, carbon policy, local air pollution and taxation. We examine the underexplored relationship between fuel prices and carpooling. Using a simple theoretical model we show that traffic flows in mainline lanes decrease when fuel prices increase. However in carpool (HOV) lanes, flow can either increase or decrease. Traffic flows in mainline lanes are shown to be more responsive to price changes when the presence of a carpool lane provides a substitute to driving alone. We test these predictions using eight years of traffic data for 1,700 locations in Los Angeles. The mean elasticity of flow with respect to fuel price is 0.136 for HOV lanes. This implies 10 additional carpools per hour for a 10 percent increase in fuel price. For mainline lanes, flow elasticities are -0.083 and -0.050 for highways with and without an HOV lane. These estimates imply that the mean highway with an HOV lane experiences a 30 percent larger decrease in hourly flow compared to the mean highway without an HOV lane. Flows in HOV lanes show an immediate decrease following a price increase but respond positively to price increases over time, which suggests time is an important input to carpool formation.