2012 – Wold Bank - The Effect of Transport Policies on Car Use: Theory and Evidence from Latin American Cities

In an effort to reduce air pollution and congestion, Latin American cities have experimented with different policies to persuade drivers to give up their cars in favour of public transport. This paper looks at two of such policies: the driving restriction program introduced in Mexico-City in November of 1989 –Hoy-No-Circula (HNC)– and the public transport reform carried out in Santiago in February of 2007–Transantiago (TS). Based on hourly concentration records of carbon monoxide, which comes primarily from vehicles exhaust, we find that household responses to both HNC and TS have been ultimately unfortunate –more cars on the road and higher pollution levels– but also remarkably similar in how fast households have adjusted their stock of vehicles, within a year. Another empirical finding is how different short- and long-run effects of the policies can be. In fact, we find that a (permanent) driving restriction like HNC can still be effective in the short-run, say, for a month or two. We also document significant heterogeneity of the effects of the policy across the city. For the case of TS we complement these results with additional evidence coming from gasoline sales, sales of used and new cars, traffic flows, and the price of taxi medallions. A theoretical (bundling) model is also developed to explain the empirical results and to compute policy costs.