[sustran] Re: Fare Policies for Taxi Services

[Karthik Rao-Cavale]

Hi Akshay,

I have been recently getting interested in a very similar kind of problem -
that of understanding how transactions are made in a bazaar economy. For
Geertz (1978) a Bazaar economy is characterized by poor information on
price and arduouus search for the best prices. Bargaining and clientelism
are the two economic institutions that he suggests emerge from the
structural conditions of information flow in a bazaar economy.

I think this literature within the field of economics and economic
sociology should be applicable to the auto-rickshaw and taxicab market
also. Where search is costly, and supply (of labor) is potentially
"unlimited" the market might develop peculiar characteristics that might
seem to violate the laws of supply and demand. These patterns have not been
studied in any great detail, to the best of my knowledge.

On the issue of stipulating prices, the issue is one of making the
stipulation "self-enforcing". If we see the government regulation as some
kind of "collective contract" between sellers and buyers, the question for
research is this: at what point do the incentives line up for a large
fraction of the sellers to opt out of the collective contract? Obviously,
while an overwhelming majority of the sellers are still abiding by the
contract, the marginal seller will lose out on buyers if he/she chooses not
to do the same. As more and more rickshaw-drivers opt out of the contract,
they create incentives for everyone else to do the same thing. But this has
also got to do with the difficulty of search in the market. A buyer will
speak to three, four autos that he passes by before choosing either to wait
for a bus or to take the price being offered. The more arduous the search,
the more likely that drivers who opt out of our "collective contract" do
not pay a penalty.

Finally, one also needs to take the number of rickshaws on the streets into
account. Now, this is not entirely a function of the number of autos that
exist out there, it is also a function of the amount of time each driver
spends driving. One of the peculiar characteristics about these markets is
that when there are drivers in the market, prices need not fall (because of
the poor search conditions). As a result, each driver is making less - so
he spends even more time driving the streets than he previously did - which
further decreases the productivity of each driver.

I have very little empirical material to offer (except one paper on
bargaining by an MIT Economics student) but I think there is a long ways to
go before we can reasonably commit ourselves to one set of regulations for
auto-rickshaws. At this point asking for best practices might be more
counter-productive rather than doing any good.

Regards,
karthik

On Mon, Apr 30, 2012 at 8:12 AM, Akshay Mani <amani at embarqindia.org> wrote:

> Hi,
>
> I think the recent appointment of the Hakim Committee (news link on this is
> provided below) in Mumbai by the Govt. of Maharashtra to come up with a
> government regulated fare fixation formula for auto-rickshaws and taxis is
> a good time to initiate a discussion on fare fixation for taxi and
> auto-rickshaw services.  Proponents of taxi market regulation indicate the
> issue of imperfect information in this market, calling for some level of
> regulation, particularly in the stipulation of fares.
>
> Are there any best practices on taxi fare policies from different cities,
> which could help answer this debate?   Particularly for the Indian context,
> insights on some of the following questions would be extremely useful:
>  where has regulation worked perfectly in fare estimation; what formula and
> input factors are used for fare estimation; how frequently are fares
> revised; how are viewpoints of different stakeholders (driver unions,
> passengers) managed in arriving at and revising fares; are there cities
> where unregulated taxi markets are working well, etc.
>
> Looking forward to some insightful comments.
>
> Thanks,
> Akshay
>
> *
> News on Hakim Committee:*
> *
> *
>
> http://www.hindustantimes.com/India-news/Mumbai/State-again-appoints-Hakim-committee-to-decide-auto-taxi-fares/Article1-840297.aspx
>
>
> --
> Akshay Mani
> EMBARQ India
> Mumbai
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