Last week, on Thursday, April 4th, I have attended the New England Study Group seminar hosted by the Federal Reserve Bank of Boston's Research Department. Meng Li from MIT and Washington University in St Louis presented her research with the title "Do Digital Platforms Reduce Moral Hazard? The Case of Uber and Taxis".
Digital platforms like Uber can enhance market transparency and mitigate moral hazard via ratings of buyers and sellers, real-time monitoring, and low-cost complaint channels. Li compares driver choices at Uber with taxis by matching trips so they are subject to the same optimal route. She also studies drivers who switch from taxis to Uber. She finds: (1) drivers in taxis detour about 7% on airport routes, with non-local passengers experiencing longer detours; (2) these detours lead to longer travel times; and (3) drivers on the Uber platform are more likely to detour on airport routes with high surge pricing.
Li's findings have implications for regulators and industry participants. For the Taxi and Limousine Commission (TLC), her results provide support for the development and implementation of smart phone applications that handle taxi dispatching and matching with passengers, digital payment, and passenger monitoring. Also, it is important for the TLC to re-evaluate the current pricing scheme that rewards taxi cab speeding as well as the impacts of alternative pricing structures. For digital platforms such as Uber, her findings suggest an opportunity for machine-learning-based techniques to detect driver opportunistic behavior, which may further enhance market transparency and trust building.
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