Skip to main content

Taxi Incentives

Whether they show it or not, most passengers are suspicious of taxis. This is because there is a conflict of interest: needlessly roundabout routes drive up the taxi's profits, while they cost passengers time and money. Is there a way to line up the incentives of drivers and passengers?

The solution is to pay taxis before the ride, not after. The cost would be based on the distance and the traffic situation. This pre-paid method would be better than the current after-pay method for three reasons.

First, it would be in the best interest of drivers to take the passenger to his or her destination as soon as possible so that they can quickly find a new customer.

Second, because the passenger knows this fact, there would be fewer arguments about the route the drivers take. A driver's mistake in taking a slower path could be mildly annoying for the passenger, but not irritating enough to incite major arguments. Passengers would also trust the drivers more when they claim that they know a faster route.

Third, there would be less traffic. This positive externality would arise because the fare would depend on the traffic situation (the heavier the traffic, the larger the costs in taking a taxi). When showed the higher costs, passengers would be more likely to take public transportation.

Granted, passengers are more likely to take public transportation even without the prepayment system, since they know that taking taxis during rush hours could be costly. But explicitly displaying the higher costs could deter a lot of passengers from taking taxis. And because the taxis know that it would be harder to find passengers during rush hours, they would be more inclined to take some time off, or at least stay away from congested areas of the city.

One possible benefit for drivers is that when passengers call for a taxi, they could bid up their prices. When taxis are much needed, for example, during stormy weather, passengers who have a higher willingness to pay could offer a higher price. This first degree price discrimination is beneficial to everyone, since the people who most need taxis would get them, and taxi drivers could increase profits. This is much more efficient and civilized than lining people up, or having taxis stop for people who most aggressively flag them down. Some may argue that this would not be fair for the less wealthy. In my view, taxis are a luxury good, and those who cannot afford higher costs of taxis on a rainy day always have the option of taking the subway.

Comments

Popular posts from this blog

On Breaking Rules

Rules are great. They provide justice, order, and stability. But must they always be followed? If not (and one would think not), which  rules can be broken, and when? The Sufficient Conditions for Rule Breaking But what about rules that do make sense—ones that serve a good, clear purpose? When can they be broken? It is not possible to consider every possible scenario regarding each rule, so here is a "Rule for Breaking Rules": When the purpose of the rule is understood, and when breaking that rule does not go against its purpose, the rule can be broken . Here are some examples worth considering. Jaywalking The main purpose of traffic lights and other traffic laws is safety. Jaywalking is morally acceptable when a pedestrian, on an empty street, for instance, correctly judges that it is safe enough to cross. In undeveloped Chinese cities, traffic lights are ignored, so attention must be paid more to oncoming vehicles than to the traffic lights. Waiting ...

Compulsory Organ Donations

More than a Nudge Robert Thaler, the soon to be winner of this year's Nobel Memorial Prize in Economic Sciences, wrote about how organ donation rates can change significantly when the question is asked differently to potential donors . In a nutshell, he differentiates the opt-in and the opt-out method, where the opt-out method gets more people to become donors, because the default choice is to be a donor. But he goes on to mention that the presumed-content law may be upsetting to some people, and that the Illinois system, which "makes one's wishes to be a donor legally binding . . . is a winning combination." Here, Thaler, in his strict adherence to libertarian paternalism, fails to consider a morally and economically superior policy: the policy of mandatory donations. It is not hard to see that mandatory donations are economically superior. To see why mandatory donations are morally superior, one need only consider the trolley problem. Here is the thought exp...

Book Recommendations

These are the books I read in my free time during military service. I thought of rating the books, but then remembered that there was an unavoidable problem with measuring opinion . So I constructed a utility graph, with engagement level on the y-axis and the enlightenment level on the x-axis. Because the best books are immensely superior to the good and the worst, and the worst books are vastly inferior to the good and the best, it would be most accurate to express my opinion by dividing the axes into thirds: the first third would be logarithmic in magnitude, the middle third linear, and the final third again logarithmic. Though this chart includes a fair number of books, the scope of the topics is severely limited to my fields of interest: Economics, Sociology, Philosophy, Religion, Policymaking, Psychology and Fiction. One reason for this is that these are the topics that I am naturally interested in. But another reason is that the Amazon fed my interests and book browsing ...