> More importantly, the appearance of induced demand is not a general argument against building roads! People get value out of getting to places. If we build road B intending to relieve congestion on road A, but road A stays just as congested, we nevertheless have enabled people to get places with road B that they would not otherwise have been able to reach. That increases utility.
There are cases where this doesn't apply, though. For instance, building motorways into the centre of cities. Yes, it means more people can get to the centre, but now there are too many cars in the centre for anyone to move around, including much more efficient forms of transport like buses. In that case, the city is going to function better if the road was never built, and people adapted their behaviour, either to move out of suburbs closer to a higher density core, or to work outside of the central area, or to use public transport. Unless you can have some other form of regulation, for instance to enforce a minimum number of people per vehicle, then an influx of inefficient vehicles in terms of road space to utility, will clearly damage the efficiency of the transport system, and the ability for people to move around.
Right, so what we need to do is take into account value of space that roads will take up (that could otherwise be used for houses, businesses, parks...), and only build more roads if the value they produce outweighs the value they consume. That's not an induced demand issue though.
I would say that's a pretty clear example of induced demand and the problems arising from it. You build the motorway, people build low density suburbs outside the city to drive and take the motorway to commute into the centre, that delivers hundreds of thousands of cars into the centre which crashes the road-space efficiency of the central area, which damages not just the people driving into the centre, but also the people who live close in, who are using much more efficient and scalable forms of transport. If the motorway was never built, people would live in apartments instead, they'd use buses or trains, and walk, and you could have more people working and living in the city while maintaining a functional transport system, and higher utility as a result.
It's not just a question of the motorway filling up, and maxing out an increase in utility, the motorway filling up means that more efficient uses of the roads in the centre are prevented. There is benefit balanced against detriment, and it's perfectly possible (depending on the exact circumstances) that the detriment will be higher than the benefit.
> which crashes the road-space efficiency of the central area, which damages not just the people driving into the centre, but also the people who live close in, who are using much more efficient and scalable forms of transport.
More traffic on the central roads is induced demand, but as jessriedel said, that's likely a sign of added value. Cars from outside displacing cars from the centre should only happen when it's a net gain - the limited road space is being used by those who gain the most value from it. People who live nearby and use trains etc. are unaffected by traffic on the central roads and can live exactly as they would if the motorway hadn't been built. Cars displacing more efficient buses is a real issue, but a general one not really related to building motorways (an increase in local car traffic would cause the same issue), and can be solved with e.g. bus lanes, congestion charges...
There are cases where this doesn't apply, though. For instance, building motorways into the centre of cities. Yes, it means more people can get to the centre, but now there are too many cars in the centre for anyone to move around, including much more efficient forms of transport like buses. In that case, the city is going to function better if the road was never built, and people adapted their behaviour, either to move out of suburbs closer to a higher density core, or to work outside of the central area, or to use public transport. Unless you can have some other form of regulation, for instance to enforce a minimum number of people per vehicle, then an influx of inefficient vehicles in terms of road space to utility, will clearly damage the efficiency of the transport system, and the ability for people to move around.