Working Paper: NBER ID: w24921
Authors: Guillaume R. Fréchette; Alessandro Lizzeri; Tobias Salz
Abstract: This paper presents a dynamic general equilibrium model of a taxi market. The model is estimated using data from New York City yellow cabs. Two salient features by which most taxi markets deviate from the efficient market ideal are, first, matching frictions created by the need for both market sides to physically search for trading partners, and second, regulatory limitations to entry. To assess the importance of these features, we use the model to simulate the effect of changes in entry, alternative matching technologies, and different market density. We use the geographical features of the matching process to back out unobserved demand through a matching simulation. This function exhibits increasing returns to scale, which is important to understand the impact of changes in this market and has welfare implications. For instance, although alternative dispatch platforms can be more efficient than street-hailing, platform competition is harmful because it reduces effective density.
Keywords: taxi market; matching frictions; regulatory restrictions; dynamic general equilibrium
JEL Codes: J22; L0; L5; L91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulatory entry restrictions (Z38) | underutilization of taxis during peak demand periods (L90) |
| Matching frictions (F12) | inefficiencies in the market (D61) |
| Matching frictions (F12) | delays and fluctuations in earnings for drivers (J33) |
| Increasing the number of taxis (R48) | longer search times for drivers (R48) |
| longer search times for drivers (R48) | reducing expected hourly earnings (J31) |
| Introducing a centralized dispatch system (L91) | reducing matching frictions (F16) |
| Market segmentation (M31) | worse aggregate outcomes (D63) |