Is Investment in High Speed Rail Socially Profitable?

The development of High Speed Rail (HSR) in Europe has been encouraged and financially supported by the European Commission. Several lines are in operation, and many others under construction or waiting for approval. HSR technology is presented as a solution to congested roads and airports. Besides, rail transport is generally regarded as more environmentally friendly than other modes. However, the case for a HSR investment is highly dependent on the volume of demand in the corridor, which generates the key benefits: time savings with respect to air transport, conventional rail and car, and the value of generated traffic. In this paper, we analyze under which conditions net welfare gains can be expected from new projects. Using real construction, maintenance and rolling stock costs of European HSR lines, and standard values of time, we try to figure out the required minimum level of demand from which investment in HSR could be considered profitable from a social perspective.