Getting from the hotel to Heathrow, we faced the hold-up problem, a fitting end to a trip that began with the Grossman-Hart+25 conference in Brussels. Our cab driver was late picking us up and in compensation the cab company offered us a discount.  But when we got to the airport, the cab driver refused to give us the discount saying he knew nothing about it and anyway it was not his fault as he’d been called after the previous driver bailed out. He refused to call his company to confirm my deal and refused to take a credit card (the hotel had told us the cab company would take a credit card if we paid a surcharge of five pounds).

Steam coming out of my ears, I traipsed into the airport and got cash out to pay him.  This gave me time to think. The cab driver knew I was not a repeat customer but the cab company was contacted by my hotel and they were definitely hoping to keep the relationship with the hotel going into the future.  So I called the hotel which called the cab company which called driver and I got my discount.

Deconstructing this later on, it seemed both I and the cab driver reacted irrationally.  Conflict annoys me and the sum involved was trivial.  The cab driver would definitely have lost his tip even if I had caved in to his demand so he would not have come out ahead by digging in his heels.

Finally, the cab company may not have set up incentives well with its (subcontracted?) employees. Their incentives are short term and differ from the company’s incentives which are long term.  A salary or greater vertical integration rather than payment by commission might dominate.  But if people are irrational, the design of the incentive scheme may not help.  After all, as I said above, the tip should have provided incentives but it did not.