An Analysis of Habitual Mode Use in the Years of Rising Oil Prices

Abstract

The existence of state dependence derived from panel data has played a very important role in studying employment and labor policies. This study is about state dependence of the transportation sector using retrospective panel survey data. The Ministry of Land, Infrastructure and Transport of Korea has conducted the survey to monitor changes in vehicle ownership and usage nationwide and to prepare measures when oil prices tend to rise sharply. From this data, we identify the existence of state dependence on passenger cars, public transportation, and nonmotorized modes. To do this, we estimate and analyze the dynamic random effects probit model that explains the selection of each transportation mode after controlling for the unobserved individual heterogeneity. Our results indicate that despite the rise of oil prices, behavior of habitual use (i.e., state dependence) of transportation modes is found in all three modes. The amount of state dependence of nonmotorized modes was the largest, followed by passenger cars and public transportation. From the estimated models, important policy implications can be drawn from the fact that the presence of state dependence and the importance of early habit formation are important not only in nonmotorized modes but also in public transportation. In other words, if policy makers want to encourage people to use public transportation in a new city, it suggests that a sufficient and convenient public transportation network should be built before people move to the city. Once cities are built without sufficient public transportation networks and people have become accustomed to using private cars, then it will be more difficult to change their transportation modes, requiring much more social efforts and costs.