Policy Study

Managing Transportation Demand

Markets Versus Mandates

Executive Summary

The increasing concern over congestion and air quality problems in Southern California, as well as recent federal legislation, has focused new attention on transportation demand management (TDM). The purpose of TDM is to reduce the demand for trips in order to cope with pollution problems and other difficulties associated with growth.

There are two general approaches to TDM: a regulatory approach and a market-based approach. The regulatory approach, such as mandatory trip-reduction programs, involves requiring a class of individuals to achieve a specific performance target established by fiat, e.g. a particular average vehicle ridership. In contrast, a marketbased policy creates incentives for socially desirable action but allows for discretionary market choices on the part of individuals. For example, the congestion pricing of expressways provides incentives for individuals to shift travel to non-peak times or to carpool, but it also allows individuals to pay premium fees if they so choose.

This study compares the regulatory approach with the market-based approach, by focusing on a paradigm example of each. The South Coast Air Quality Management District’s Regulation XV (a mandated employer-based trip-reduction program) is contrasted with the potential for congestion pricing on southern California’s freeways. The reduction in vehicle miles traveled (VMT) from congestion pricing is projected to be at least 12 times as great as that produced by Regulation XV. Even though regulatory techniques like Regulation XV are considered more politically acceptable, market-based strategies such as congestion pricing are more effective and more efficient, and should be considered the TDM policy tool of choice.