Ride-hailing drivers pay a proportion of their fares to the ride-hailing platform operator, a commission-based compensation model used by many internet-mediated service providers. To Uber drivers, this commission is known as the Uber fee. By contrast, traditional taxi drivers in most US cities make a fixed payment independent of their earnings, usually a weekly or daily medallion lease, but keep every fare dollar net of expenses. We assess these compensation models from a driver’s point of view using an experiment that offered random samples of Boston Uber drivers opportunities to lease a virtual taxi medallion that eliminates the Uber fee. Some drivers were offered a negative fee. Drivers’ labor supply response to our offers reveals a large intertemporal substitution elasticity, on the order of 1.2. At the same time, our virtual lease program was under-subscribed: many drivers who would have benefitted from buying an inexpensive lease chose to opt out. We use these results to compute the average compensation required to make drivers indifferent between ride-hailing and a traditional taxi compensation contract. The results suggest that ride-hailing drivers gain considerably from the opportunity to drive without leasing.
Joshua Angrist, Sydnee Caldwell, Jonathan Hall
Economics and Market Design