The effects of participating in digital ride-hailing on taxi drivers’ business operations

Abstract

The advent of the digital ride-hailing business model has disrupted the for-hire ride service industry. After the progressive protests from traditional taxi drivers, many countries have imposed strict regulations on the operation of digital ride-hailing. This paper provides the first evidence that, by allowing for dynamic pricing, regulating digital ride-hailing services to comply with the safety and licensing requirements akin to those applied to traditional taxi services can further improve the welfare of taxi drivers. Using nationally representative survey data of taxi drivers in Taiwan and analytical strategies that address the nonrandom selection issue, we quantify the impact of a government-mandated digital ride-sharing system known as the “Multipurpose Taxi Program” on for-hire drivers’ business operation and performance. We find that participation in this program increases drivers’ profits by at least 11 %, which can be attributed to both better driver-rider matching efficiency and the dynamic pricing scheme offered by digital ride-hailing. In addition, the program leads to better protection for customers. Participating in the program makes drivers are more likely to purchase passenger insurance by at least 44 %. We further point out that the effect of the program is heterogeneous in that this program decreases the profits of taxi drivers who primarily rely on radio or phone dispatches, but not street searching.