FT points to demand substitution among commuters in the US in response to rising fuel prices, as people shift away from private vehicles to mass transit. People are overcoming their pandemic time hesitations and taking to public transport as petrol prices have gone by 57% in the last two years.
This is also a much needed boost to mass transit systems which have been devastated by the pandemic. However it remains to be seen as to how many of these commuters stay on after fuel prices regain normalcy.
High prices are equivalent to a tax on petrol. It's a reminder about the role of taxes to generate demand response to curb negative externalities and also encourage positive externalities.
Historically, a spike in gasoline prices has pushed more people on to public transport. A study conducted by Bradley Lane at the University of Texas examined US cities from 2002 to 2009 and found that for every 10 per cent increase in petrol prices, rail saw an increase of 8 per cent in ridership while bus use increased 4 per cent on average.
This is the study.
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