Evaluating Estimation Techniques of Transportation Price Elasticity

Price elasticity is critical for managed lane planning. To set an effective pricing policy that can achieve a specific objective–-whether it is to maximize freeway system performance, to reduce vehicle emission, or to capitalize on revenue–-transportation planners and policy makers need to know how users would react to various pricing policies. The issue is even more important when the public has not yet fully embraced transportation pricing. Three techniques have been frequently used for estimating transportation price elasticities: shrinkage ratio, midpoint elasticity, and log arc elasticity. However, little is known about the suitability of the techniques. This paper evaluates these techniques by analyzing their statistical properties and comparing their relative efficiency. The findings suggest that the appropriateness of an estimation technique of price elasticity varies from one circumstance to another. It is important to understand the variations and apply the techniques accordingly.