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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