Estimating the long-run metro demand elasticities for Lisbon: A time-varying approach

Abstract

This paper provides the first estimation of long-run demand elasticities for Lisbon’s metro, covering the lifetime of the metro’s operation from 1960 until 2017. The findings indicate that the metro patronage is relatively more responsive to changes in the fare than to changes in service level, with long-run elasticity values ranging between −0.45 to −0.84 for metro travel card and between 0.45 and 0.50 for service level. This implies that fare policies are likely to be more effective at influencing patronage than supply policies. We also find a substitution effect between the metro and private motorized transport, but not between the metro and the urban bus/tram system. There is also evidence of a strong relation between wage and metro demand for poorer individuals, which we interpret as an indication of greater mobility constrains faced by these individuals for whom an increase in income level only permits more mobility by public transport. Finally, we also implement a recursive time-varying method to investigate the presence of structural breaks resulting from the very large increase in metro prices and the strong reduction in service level during the period of economic crisis and public finance imbalances that followed the financial and economic crisis of 2008. During this period, metro demand elasticities changed, especially for the metro fare, suggesting it became more elastic.