Friday, October 26, 2007
Taxi Incentives -vvw

Due to work reasons, I have taken more taxi rides in October than in any typical year. Most of these rides are between my workplace and home. One thing I noticed from all these rides is that the price and route varies by quite a large extent.

Some of the routes are ridiculously roundabout. I can only conclude that these cab drivers are either dishonest or at best incompetent. For the case of dishonest drivers, the incentive to take a longer route is usually profit. The longer the route, the higher the fare.

Since I am currently reading Freakonomics, which has a whole chapter on incentives, I naturally wondered if calculating fare based on route (which affects distance and time) is one of the major factors contributing to unethical behaviours in taxi drivers.

Suppose that the cab fare is constant given a set of parameters (start point, destination and time of day), would it not be in the interest of the taxi driver to choose the most economical route (in terms of time spent and the amount of diesel used)? Of course, it would not be easy to determine how much a particular trip should cost. If the price is placed too high, taxis will avoid plying this route altogether.

Perhaps we could adopt a free market approach instead? It is usually rather efficient, no? Every person who wants to take a cab places a bid for his trip (maybe through the phone) and let the market forces work it out. As an added bonus, this would also solve the problem of taxi drivers not stopping for passengers just to get the on-call charge. Unfortunately, the drawback is confusion.

This entry is not intended to be an in-depth examination of the problem but rather, to point out that there seriously is a problem and to suggest some directions we can consider taking in solving the issue.

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Yiheng made 11:05 PM

2 Comments:

the free market approach assumes perfect knowledge of the traffic conditions, which may not be be perfect i.e jams, wet weather
and perfect knowledge would be too hard to implement
the difference in route is probably due to what cab drivers think is either 1) the shortest route(spatial) 2)the fastest route (temporal)
and these 2 usually differ, sometimes by a lot
and something to point out. actually cab drivers don't like long journeys; true they earn more from you, but in the long run, it means they pick up less passengers. if your journey was say, half an hour and they earned 20 bucks from you, it would have been better for them to make two 10 min trips and earn 15 bucks(assumption), something that a cab driver told me
By  bOb™, at 4:54 PM  

I must be damn unlucky then, the routes were both longer and slower.
By  Anonymous, at 10:38 PM  

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