Uber versus Taxi: A Driver’s Eye View

Abstract

Rideshare drivers pay a proportion of their fares to a ride-hailing platform operator, a commission-based compensation model used by many 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, keeping every fare dollar net of lease costs and other expenses. We assess these compensation models 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, and higher for those who accept lease contracts. At the same time, our virtual lease program was undersubscribed: many drivers who would have benefited from buying an inexpensive lease chose to sit out. We use these results to compute the average compensation required to make drivers indifferent between rideshare and taxi-style compensation contracts. The results suggest that rideshare drivers gain considerably from the opportunity to drive without leasing. (JEL J22, J31, L84, L92)