Lucas Davis “Estimating the Price Elasticity of Demand for Subways:
Evidence from Mexico” (Revised December 2020) (Revised version published in Regional Science and Urban Economics, 87, 103651, 2021)| WP-307R | Blog Post

Abstract:
This paper uses fare changes in Mexico City, Guadalajara, and Monterrey to estimate the price elasticity of demand for urban rail transit. In two of the cases there is a significant fare increase (30%+), and in the third there is a 60-day fare holiday. Ridership responds sharply in the expected direction in all three cities, implying price elasticities which range across cities from -.23 to -.32. In addition, there is suggestive evidence that the temporary fare holiday led to a higher baseline level of ridership. These estimates are directly relevant for policymakers considering alternative pricing structures for urban rail. The paper discusses the relevant economic considerations and then shows how the estimated elasticities can be used to perform policy counterfactuals.