Optimal Fare, Vacancy Rate, and Subsidies under Log-Linear Demand with the Consideration of Externalities for a Cruising Taxi Market

Chun-Hsiao Chu

doi:10.1155/2017/5192968

Abstract

Externality is an important issue for formulating the regulation policy of a taxi market. However, this issue is rarely taken into account in the current policy-making process, and it has not been adequately explored in prior research. This study extends the model proposed by Chang and Chu in 2009 with the aim of exploring the effect of externality on the optimization of the regulation policy of a cruising taxi market. A closed-form solution for optimizing the fare, vacancy rate, and subsidy of the market is derived. The results show that when the externality of taxi trips is taken into consideration, the optimal vacancy rate should be lower and the subsidy should be higher than they are under current conditions where externality is not considered. The results of the sensitivity analysis on the occupied and vacant distance indicate that the relation of the vacant distance to the marginal external cost is more sensitive than the occupied distance. The result of the sensitivity analysis on the subsidy shows the existence of a negative relationship between the marginal external cost and the optimal subsidy.

Highlights

The taxi is a mode of paratransit in the urban public transit system
The optimization results show that the optimal vacancy rate and optimal subsidy are the outcome of the functions of price elasticity, waiting time elasticity, maximum social willingness-to-pay, net marginal social external cost, and marginal private cost
The optimized occupied distance, total operation distance, and subsidy should be higher, whereas the fare, vacant distance, and vacant rate should be lower than the optimization results without the consideration of the externalities

Summary

Introduction

The taxi is a mode of paratransit in the urban public transit system. It is a popular mode of transportation in urban areas because of its embedded features of convenience, speediness, privacy, comfort, long hours of operation, and door-to-door delivery with no need to pay parking fees. If the fare of a taxi service is reasonable and the quality is good enough, using the service of taxis is attractive to private vehicle users. This may result in a reduction in the external cost incurred by using private vehicles (e.g., environmental pollution, congestion, and fuel consumption) and enhance the efficiency and safety of the transportation system in urban areas. Cruising taxis always exist and are perhaps the most basic mode of operation in the taxi industry

Objectives

Results

Discussion

Conclusion