Does the Substitutability of Public Transit Affect Commuters’ Response to Gasoline Price Changes?

Abstract

This paper determines the extent to which gasoline price elasticity is affected by the availability of a substitute for driving — public transportation. Measuring the substitutability of public transportation presents an important practical difficulty. To address this, we predict individuals’ commute times by private and public transit conditional upon their observable characteristics and create a measure of substitutability between the two modes based on transit times. This allows us to measure the effect of public transportation on commuters’ sensitivity to gasoline prices. The interaction of gasoline price with our constructed substitutability measure is found to have a significant effect on annual vehicle miles traveled (VMT), indicating that investments in public transit could play an important role in altering motorists’ sensitivity to gasoline prices and increasing the effectiveness of a gasoline tax. However, we find evidence to support a policy of increasing public transit accessibility only in the presence of increased gasoline taxes.