What Drives Taxi Drivers?

• Definition▫an expert seller knows more about the

quality a consumer needs than the consumer herself

• Examples▫repair services (cars, computers)▫medical treatments

• Problem:▫the expert can cheat

overtreatment - providing a unnecessarily high quality

undertreatment - providing a too low qualityovercharging - charging unjustifiably much

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Expert Services – Credence Goods

What Drives Taxi Drivers?

• Theory▫Darby and Karni (1973)▫Dulleck and Kerschbamer (2006)

• Experiments in the lab▫Dulleck, Kerschbamer, and Sutter (2010)

• Field data▫Hughes and Yule (1992), Gruber and Owings

(1996), Gruber et al. (1999), Izuka (2007): medicine

▫Schneider (2009): car repairs• Problems with data collection, control• Our solution: Natural field experiment in

the taxi market

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Expert Services – Literature

What Drives Taxi Drivers?

• Literature on labor supply of taxi drivers (Camerer et al., 1997; Farber, 2005; Farber, 2008, Crawford and Meng, 2011), and on stopping behavior of taxi drivers (Gambetta and Hamill, 2005)

• however, little is known about the actual product taxi drivers sell – an expert service!

• Possible types of fraud▫ overtreatment = taking longer route▫ overcharging = charging more than justified by

chosen route (e.g. night tariff, fictional fares etc.)▫ undertreatment ruled out

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Taxi services

What Drives Taxi Drivers?

• H1: Information about city▫passengers who are not familiar with the city

are more likely to face overtreatment

• H2: Information about fares▫passengers who are not familiar with the fares

are more likely to face overcharging

• H3: Income▫high-income passengers receive worse service

than low-income passengers

Research Question – Hypotheses

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What Drives Taxi Drivers?

• Treatment design: 3x2

• 174 taxi rides in Athens, Greece

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Treatments

local native non-local native foreigner

low income 29 29 29

high income 29 29 29

What Drives Taxi Drivers?

• The experiment

▫three experimenters (all male in their mid-late twenties)

▫manipulation of origin▫simultaneous observations: same starting

point, same destination, different roles▫create reference point with local native▫randomization over routes, days, and time

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Method

What Drives Taxi Drivers?

• High income▫wearing suit▫top-end hotel

• Low income▫shabby clothes▫low-end accommodation

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Method – Signaling Income

What Drives Taxi Drivers?

• keeping track of fraud

▫GPS-logger

records exact position every single second allows reconstructing exact route, duration etc.

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Method – GPS Logger

What Drives Taxi Drivers?

• Facts▫15 routes▫63 h net driving time▫2,236 km net travelled distance (≈ Innsbruck to

Damascus)

▫13 km mean trip distance▫22 min mean trip lenght▫3% female drivers▫42% Skoda, 30% Toyota

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Method

What Drives Taxi Drivers? 10

Method – Routes

What Drives Taxi Drivers? 11

Example for Overtreatment

What Drives Taxi Drivers? 12

Example for Overtreatment

OT-index: 1.43additional distance: 4.2km

What Drives Taxi Drivers? 13

Example for Overcharging

price-index: 1.61additional fare: €9.5

local non-local foreigner

What Drives Taxi Drivers? 14

Results – Origin of Customer

locals non-locals foreigners

price-index 1.04 1.09 1.19

+4.4% +9.3% / +14.2%

What Drives Taxi Drivers?

locals non-locals foreigners

OT-index 1.03 1.08 1.08

+5.4% +-0 / +5.4%

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Results – Origin of Customer

What Drives Taxi Drivers? 16

Results – Origin of Customer

locals non-locals foreigners

OC frequency 0.02 0.03 0.17

+50% +567% / +850%

What Drives Taxi Drivers? 17

Results – Income of Customer

price-index locals non-locals foreigners total

low income 1.01 1.07 1.19 1.09

high income 1.07 1.11 1.18 1.12

What Drives Taxi Drivers? 18

Results – Income of Customer

OT-index locals non-locals foreigners total

low income 1.01 1.06 1.06 1.05

high income

1.05 1.10 1.11 1.09

What Drives Taxi Drivers? 19

Results – Income of Customer

OC frequency

locals non-locals foreigners total

low income 0.00 0.00 0.21 0.07

high income 0.03 0.07 0.14 0.08

What Drives Taxi Drivers?

(1)PriceIndex

(2)Overtreatment

Index

(3)OverchargingDummy

nonlocal0.101**(0.051)

0.093***(0.035)

0.018(0.027)

foreign0.147***(0.054)

0.005(0.024)

0.094 ***(0.045)

rich0.046(0.045)

0.060**(0.026)

0.018(0.045)

timezone-0.000(0.003)

-0.004**(0.002)

0.006 **(0.003)

Additional controls Yes Yes Yes

Results – Econometric Analysis

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What Drives Taxi Drivers?

•Overtreatment: more extensive for passengers who are not from the city (H1)

•Overcharging: more common for foreigners (H2)

•Income: Partial effects only (overtreatment)

•(Some) taxi drivers know whom to cheat and how to cheat!

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Conclusion

What Drives Taxi Drivers?

Thank you!

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