Travel Mode Substitution in Saõ Paulo: Estimates and Implications for Air Pollution Control

March 1995 The study finds that households' choice of travel modes in Saõ Paulo is not very sensitive to pricing. So, subsidies to less polluting modes can hardly be justified on the basis that they would attract traffic from more polluting modes. Several caveats apply. How would travel demand in Saõ Paulo respond to demand management instruments? Could higher gasoline prices or lower metro fares (or changes in travel time) help reduce congestion or pollution? Swait and Eskeland use cross-sectional variation from an urban travel survey to study the substitutability in demand between travel modes. The method assumes that the set of trips is given (that is, origin-destination pairs do not change). Choice of mode was found to be quite insensitive to changes: all elasticities were lower than 0.5 in absolute value, and most were close to zero. While the sensitivity of mode choice to relative travel times (that is, speeds) was somewhat greater than that to costs, the general finding is that mode choice is quite inflexible. So, subsidies to less polluting (less congesting) travel modes would not help much in attracting travelers from more polluting (more congesting) modes. (The same holds for subsidized means of making them run faster.) But there are important limitations in the scope of the study. First, the study does not discuss optimal pricing. It merely examines the likely sign and magnitude of the links between pollution and policy parameters such as prices and travel speeds. Second, aggregate demand by mode could also depend on the city's shape and its travel intensity (the number, direction, and length of trips). For example, if a city stretches along a constructed metro line, the study would not capture such a phenomenon, since sensitive trip generation is excluded. These issues are not examined in the study. This paper -- a product of the Public Economics Division, Policy Research Department -- is part of a larger effort in the department to study the use of fiscal instruments in environmental protection. The study was funded by the Bank's Research Support Budget under the research project Pollution and the Choice of Economic Policy Instruments in Developing Countries (RPO 676-48).