A taxi driver has a fixed cost: he has to get out of bed, get into his cab and start roaming the streets. He is compensated by a fixed rate per mile. The combination of these two creates a basic incentive problem which explains a lot of common frustration with cab rides. In order for the fixed rate to compensate the cab driver for his fixed costs, it must be set above the flow marginal cost of driving. The implication is that the cab driver always has an incentive to extend your trip longer than is necessary. And he has an incentive to reject short trips. And they saturate airports but you can’t find them in your neighborhood, etc, etc…
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July 16, 2009 at 9:41 am
Sean Crockett
But a passenger is typically charged a fixed fee up front in addition to paying the variable cost of mileage/time. This upfront fee encourages short, speedy trips. Within Manhattan, the fixed fee is sufficiently high to get fast service (because the cabby can quickly get another customer). But if you go from Manhattan to another borrow, they’ll try to take the longest route possible. A higher fixed fee between boroughs would help reduce the problem provided the likelihood of picking up a return customer quickly is sufficiently high.
July 16, 2009 at 9:54 am
Divya
This is the problem with most developed countries. In India/Malaysia, taxi drivers and customers bargain for the charge to take you from place A to place B (Even though they are supposed to use the “meter”). Once the charge is fixed, the incentive for the driver changes to spending the least amount of gas so as to optimize his profit from the bargain.
The drawback for the customer is, they need to know what the going rates are to travel from place A to place B.
July 16, 2009 at 10:58 am
michael webster
I represent a class of Toronto cab drivers in an action against the City of Toronto.
Your overview is reasonable, but most experienced cab drivers choose the route that will be the least taxing for them to drive, viz. short cuts and different routes.
One problem a cab driver faces is the perceived tradeoff between waiting in a cab line and the length of the drive that they get from that wait. Most experienced cabs also know to take the bird in the hand.
Many cab’s remain idle or waiting pointlessly for the big ride: another reason that they want the airport ride.
Even with GPS advances, and the internet, it is hard to get a cab outside the major corridors.
July 16, 2009 at 4:27 pm
Jonathan Berman
I’ve had many conversations with many cab drivers in different cities about this exact topic. I find that yes, the way the payment scheme is set up matters a lot for a cab driver’s preference in their desired cab fare.
1) Urban Cab Driver : Desires many short trips due to the fixed cost ($3-4 per fare) and tips. Doesn’t like driving to areas where they can’t get a quick pick up. Problem here is that you can’t provide incentives for them to take you far away places, because you’re not going to be a repeat customer. Hence you get cab drivers “shopping around” checking out where you’re going before they pick you up.
2) Suburban Cab Drivers : Prefers booking in advance many long trips because they are good fares. Ideal trip is going from a hotel to the airport and back. So you’re looking for a cab driver in the suburbs, check out a local hotel. Also, old folks homes are a popular spot. But if you’re not near either, you just need to always have a number on you)
3) Foreign Cab Driver : Payment structure is not regulated, and they’ll take advantage of that. Requires you to negotiate in advance. Otherwise they will rip you off when they can.
4) Zoned Payment Scheme : Haven’t dealt much with this. I imagine this mitigates cab driver’s feelings about traveling long distances. If you need to go to outer city, you pay a fee, and cab drivers can better stomach this.
July 22, 2009 at 3:59 am
Daniel Naujoks
In my humble point of view there are a few additions since the simple incentive/disincentive model described above lacks some other factors in the decision making process of cab drivers:
Taking a unnecessarily long route has the risk of being discovered and the passenger not paying/ stress arguing/ denunciation at the taxi company…. Thus, the cab driver has to make a prediction on how likely it is that he will get caught. This may be based on
a) the degree of familiarity with the city the passenger demonstrates
b) the complexity of the city (e.g. in most US cities with the easy, square structure it’s not easy to cheat).
In addition, most taxi price systems do not start at zero. Instead, they start at 3.5 EUR, 4 USD, …. In case this is not only the minimum fare but supplement, this is an incentive for many short rides, since the money/distance ratio decreases with longer rides! The cab driver has than to predict how big the interval between two rides is in order to compare the benefits of a longer ride and several short ones.
Is there a better price system? The system ‘distance A-B = x’ sounds good. But unless one has access to GPS data and a reliable (!) digital map system it is difficult to have a price list for all points to all points in a given area. Further, this system might no be able to react if there are sudden (and temporary) changes like road blocks, … Some pre-paid taxi services (e.g. in Delhi) work on a A-B basis.
Further, one has to consider that the level of customer satisfaction is not only connected to the amount of money we pay but also to the ease and subjectively (!) accessed level of fairness.
In any case, there is not only the distance factor but also the time factor. Thus, most taxi systems have a fee for distance as well as for time. This appears to be adequate since the risk of getting caught in traffic should be carried by the customer too. On the other hand, the driver may choose a congested road if he thinks the money given by the customer exceeds his extra cost in fuel and the money he could make by driving several customers quickly to distant locations….
I guess, in order to avoid all these problems, you have to ride your bicycle or even better – stay at home!
July 22, 2009 at 9:31 am
michael webster
@ Daniel
1. It depends on the type of brokerage set up. In Toronto, many cabs have GPS hook-ups so the brokerage knows when and where the cab is. It is hard for the cabbie to cheat on these rides because he will be bounced out of the system or suspended for a few days.
2. Toronto Airport limos/cabs do work on published fix rate to areas or regions.
November 6, 2009 at 10:33 pm
George
Nice site. Very cool info about taxi drivers and rates. Thanks for the post.