The new public transport pricing in Madrid Metropolitan Area: A welfare analysis Mercedes Burguillo a, * , Desiderio Romero-Jord  an b , Jos  eF  elix Sanz-Sanz c a Universidad de Alcal a, Plaza de la Victoria, 3, 28802 Alcal a de Henares, Spain b Universidad Rey Juan Carlos, Paseo Artilleros s/n, 28032 Madrid, Spain c Universidad Complutense, Campus de Somosaguas, 28223 Pozuelo de Alarc on, Spain article info Article history: Received 31 August 2016 Received in revised form 7 December 2016 Accepted 14 February 2017 Available online xxx Keywords: Public transport Welfare Pricing policy Household Urban transport LA/AIDS models abstract In a context of economic crisis, the amount of the demand public transport subsidies in Madrid has been reduced to control the level of public deficit. This has implied a worsening of public service quality and an increase of public transport prices. Using the Spanish Household Survey, this paper analyses the impact on welfare generated by the increase of public transport prices in 2008e2012. For this price and income elasticities have been computed using an LA/AIDS model. Price public transport elasticities are low (around 0.1%) and only significant for the years of the highest price increase. Fuel is substitutive for public transport with a cross-price elasticity of 0.25% and the other goods consumption is almost in- dependent of the consumption of public transport with a cross-price elasticity of 0.06%. The results of income elasticies prove that public transport is a normal good. Results show that this new policy has harmed with a similar impact, low and medium income households. Those households have supported an average loss of welfare of 3.66% of their income. The welfare loss supported by the richest households is 1.5% of their income, which represents only a 40% of the average costs supported by the rest of households. © 2017 Elsevier Ltd. All rights reserved. 1. Introduction Regional and local authorities of Madrid have focused their re- sources toward the supply of an integrated, high-quality public transport system in Madrid Metropolitan Area. 1 Having reached that goal, Madrid City Municipality and Madrid Regional Govern- ment presented their public transport policy as one of the main achievements of their administration. On the one hand, this transport policy has consisted in a strong public investment aimed at expanding public transport in- frastructures, especially the underground network. In 1995, Madrid underground had 120 km of tracks and 164 stations. In 2009, 287 km of tracks and 291 stations were reached, which is the current network size. During these 14 years, the underground network grew 139%. The Madrid underground system is now the second largest in Europe following the London Underground. On the other hand, the abovementioned policy was focused on subsidization of operational cost via fares. Thus, the price of public transport in Madrid has been traditionally low as a result of the high level of subsidization of fares (Vassallo, P erez del Villar, Mu~ noz-Raskin, & Serebrisky, 2009). The only ticket type that covered the operational costs per trip was the single ticket (single ticket use represents approximately 9% of total trips). 2 Moreover, the fare increase which took place when the network was being expanded proved to be insufficient to cover the ever-increasing operational costs. 3 One of the direct consequences of such a public policy is that Madrid had in 2010 the highest public transport usage ratio compared to 21 other European cities, and the degree of satisfaction found among public transport users reached a level of 78% (Mu~ noz- * Corresponding author. E-mail addresses: Mercedes.burguillo@uah.es (M. Burguillo), Desiderio.romero@ urjc.es (D. Romero-Jord an), jfelizs@ccee.ucm.es (J.F. Sanz-Sanz). 1 Madrid Metropolitan Area corresponds to Madrid Region, where there are many medium and small towns economically and demographically connected to Madrid city's dynamism. 2 Operational costs exclude infrastructure investments. 3 Due to the indirect costs related to the massive investments carried out on the underground network and the increase of labour cost caused by the fast increase of real income. Contents lists available at ScienceDirect Research in Transportation Economics journal homepage: www.elsevier.com/locate/retrec http://dx.doi.org/10.1016/j.retrec.2017.02.005 0739-8859/© 2017 Elsevier Ltd. All rights reserved. Research in Transportation Economics xxx (2017) 1e12 Please cite this article in press as: Burguillo, M., et al., The new public transport pricing in Madrid Metropolitan Area: A welfare analysis, Research in Transportation Economics (2017), http://dx.doi.org/10.1016/j.retrec.2017.02.005