Epsilon Archive for Student Projects

Abstract

The United States’s transport sector accounts for 28 % of national CO2 emissions. Since U.S. intercity trains emit approximately 39% less CO2 per passenger mile than domestic flights, understanding the potential for modal shift from air to rail is crucial for climate policy. This thesis investigates how train ticket prices influences the demand for domestic flights in the U.S., i.e. the cross-price elasticity between the two modes of transportation. The analysis uses annual panel data covering six domestic routes over the time period 2013-2023. A log-log demand model for air travel is estimated using a first difference estimator with a linear constraint, helping to control for time-invariant route-specific factors and address endogeneity. The results indicate a small, positive, but statistically insignificant, cross-price elasticity, suggesting limited substitution from air to rail in the U.S. market. In contrast, the own-price elasticity of flight demand is statistically significant and inelastic (approximately -0.94). These findings imply that policy efforts to promote modal shift from air to rail will likely require more than adjustments in rail pricing alone. Instead direct pricing interventions targeting air travel, such as taxes or fees, are likely to be more effective.