The article examines the economic determinants of the functioning of regional passenger transport in Poland against the background of changes that have taken place in this sector since the beginning of the previous decade. These changes have covered both demand and supply, and they also include organizational changes in railway transport. The author argues that there are several economic reasons that the government is more involved in regional railway transport than in road transport. This thesis is supported by empirical data on selected segments of Poland’s transport sector collected by government’s Central Statistical Office (GUS) as well as by data from annual reports released by railway operators. Data by the Central Statistical Office shows that the number of public transport passengers in outlying areas has decreased in recent years, the author says. This negative trend adds to the still unresolved problem of how regional railway transport should be organized. A look at this problem in terms of a simple relationship between direct costs and possible income suggests that the only economically viable solution would be to abandon unprofitable services, the author adds; however, mass transit meets socially important tasks and is expected to benefit the public. The author’s analysis shows that it is possible to quantify the external costs of transport and determine the benefits to society. This makes it possible to define a reasonable level of subsidies for the operation of public transport so that the economic benefits for users and the general public could be maximized.