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On 10 December 1868, the first traffic lights were installed outside the British Houses of Parliament in London to control the traffic in Bridge Street, Great George Street and Parliament Street. They were promoted by the railway engineer J. P. Knight and constructed by the railway signal engineers of Saxby & Farmer. The design combined three semaphore arms with red and green gas lamps for night-time use, on a pillar, operated by a police constable. The gas lantern was turned with a lever at its base so that the appropriate light faced traffic.

Although it was said to be successful at controlling traffic, its operational life was brief. It exploded on 2 January 1869, as a result of a leak in one of the gas lines underneath the pavement, injuring or killing the policeman who was operating it. With doubts about its safety, the concept was abandoned until electric signals became available.

The first electric traffic light was developed in 1912 by Lester Wire, an American policeman of Salt Lake City, Utah, who also used red-green lights. On 5 August 1914, the American Traffic Signal Company installed a traffic signal system on the corner of East 105th Street and Euclid Avenue in Cleveland, Ohio. It had two colors, red and green, and a buzzer, based on the design of James Hoge, to provide a warning for color changes. The design by James Hoge allowed police and fire stations to control the signals in case of emergency. The first four-way, three-color traffic light was created by police officer William Potts in Detroit, Michigan in 1920. In 1922, T.E. Hayes patented his "Combination traffic guide and traffic regulating signal" (Patent # 1447659). Ashville, Ohio claims to be the location of the oldest working traffic light in the United States, used at an intersection of public roads until 1982 when it was moved to a local museum.

The first interconnected traffic signal system was installed in Salt Lake City in 1917, with six connected intersections controlled simultaneously from a manual switch. Automatic control of interconnected traffic lights was introduced March 1922 in Houston, Texas. The first traffic lights in England were deployed in Piccadilly Circus in 1926. In 1923, Garrett Morgan patented his own version. The Morgan traffic signal was a T-shaped pole unit that featured three hand-cranked positions: stop, go, and an all -directional stop position. This third position halted traffic in all directions to give drivers more time to stop before opposing traffic started. Its one "advantage" over others of its type was the ability to operate it from a distance using a mechanical linkage. Toronto was the first city to computerize its entire traffic signal system, which it accomplished in 1963.

Countdown timers on traffic lights were introduced in the 1990s. Though uncommon in most American urban areas, timers are used in some other Western Hemisphere countries. Timers are useful for drivers/pedestrians to plan if there is enough time to attempt to cross the intersection before the light turns red and conversely, the amount of time before the light turns green.