While all four of the main modes of intercity passenger transportation in Canada (air, automobile, bus, and rail) are currently subsidized, rail recovers from its users a considerably lesser portion of the total cost of service than any of the other three modes. This thesis estimates the effect this imbalance has on the passenger network in two ways: i) in physical terms -- the change in modal volumes given full-economic-cost pricing and the implications this has on network configuration; and ii) in financial terms -- the dollar cost of the economic efficiency losses suffered due to non-full-economic-cost pricing. The first element is estimated by calculating modal fares based on full cost recovery for 52 intercity routes between Winnipeg and Quebec City. The changes represent from the actual fares charged is translated into volume changes based on a set of demand elasticities developed for this thesis. The second element is estimated for these same 52 routes using the standard deadweight loss triangle methodology which measures the loss in aggregate social welfare that exists when non-optimal prices are being charged. This result is then extrapolated to a national level. The calculations show that given full-economic-cost pricing, air volumes would increase by 4.76%, automobile volumes by 0.32%, and bus volumes by 3.47%. Rail volumes would decline by 56.67%. While the changes are marginal for the non-rail modes and would not likely result in any changes to the network, rail would cease to be a viable mode on many routes. The economic efficiency distortion caused by the failure to charge fares based on full economic costs amounted to about $130 million in 1986. This cost, along with the subsidy itself, is what the social and political benefits of continued VIA Rail subsidization must be compared to, not simply the amount of the subsidy, as is currently done. This estimate of deadweight loss ignores positive tourism, energy, safety, and environmental externalities of rail, and thus overestimates somewhat the detrimental effect of VIA rail subsidies. / Business, Sauder School of / Graduate