Davis, Lucas “Estimating the Price Elasticity of Demand for Subways: Evidence from Mexico” (June 2020) | WP 307 | Blog

Abstract:
There is surprisingly little recent evidence on the price elasticity of demand for public transportation, and virtually no evidence from low- or middle-income countries. This study uses fare changes in Mexico City, Guadalajara, and Monterrey to estimate the price elasticity of demand for urban rail transit. The paper documents, for example, that when the price for the Mexico City subway increased from 3 pesos to 5 pesos, ridership fell 12%, and that during a 60-day fare “holiday” for the Monterrey subway ridership increased 67%. Across cities and specifications the implied price elasticities range from -.18 to -.33. The paper then shows how these elasticities can be used to perform policy counterfactuals. In an ancillary analysis using data on electricity consumption the paper finds that the marginal cost of urban rail transit in Mexico is less than $.10 per rider, and the paper calculates the potential efficiency gains from moving fares closer to marginal cost.

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