Cruising costs and the price elasticity of parking demand

Estimation of the demand for on-street parking is a key element for parking pricing policies. Many of the standard demand modeling approaches – based on a reduced-form demand equation – do not take into account the full cost of parking as searching costs (cruising) are usually unobserved. Ignoring cruising costs implies a downward bias of the elasticity of demand with respect to the total cost of parking since the cost of cruising depends on the number of cars parked. This chapter proposes a new stylized econometric model that allows us to retrieve unbiased elasticity estimates, with the usually available data including only parking occupancy and parking fees. Using parking administrative data available for Copenhagen, we estimate the price elasticity of parking demand and find a significant cruising bias that is likely to be present in the parking price elasticity measures in the literature.