Cabs are paid by the minute below a certain speed and by the mile above a certain speed. Cab drivers will earn more by completing trips faster. Thus congested traffic costs costs cab drivers money.<p>The introduction of option pricing theory, terminology and various forms of hand waving does nothing but confuse the central argument with gross misapplication of theory.
Some economists at Vanderbilt used the introduction of Boro cabs (green cabs) to estimate the effect of an additional for hire vehicle on traffic congestion. They claim that most of the increase in Midtown Manhattan traffic congestion is due to Lyft/Uber[1].<p>[1] <a href="https://www.danielmangrum.com/docs/Boro_current.pdf" rel="nofollow">https://www.danielmangrum.com/docs/Boro_current.pdf</a>
> driving customers faster earns the driver more.<p>I always knew this, but I always assumed it was because of the value of the $2.50 meter drop. I didn't realize how much of an incentive it was built into the meter fare.<p>This explains why they always drive so crazy.
My (admittedly limited) experience in NYC taxis did involve a lot of rapid acceleration and speeding. This makes a lot more sense now. Might explain some of the NYC cabbies reputation for reckless driving if they are incentivized to be going above 12mph as much as possible.
>Going through more than 10 years worth of NYC taxi data, I analyse how the antiquated meter system impacts the livelihood of NYC cabbies by drawing an analogy with stock options trading. Interestingly, this approach allows us to show that drivers have progressively been worse-off, independently of competition from Uber.<p>The author ignores significant issues with the data. These include time of day, where time-specific surcharges increase the fare independent of distance or time spent in the taxi. The author also ignores the shift system for fleet cabs. As a general rule, fleet cabs operate two twelve hour shifts, with the day shift generally being <i>less</i> lucrative than the night shift. What's more, the author ignores the fact that Thursday evening through Sunday morning are significantly more lucrative than the rest of the week.<p>If you ignore the above and just average everything together, you'll miss important differentiators in revenue.<p>I get that the author normalized the data to enable his analysis of revenue. But given that he ignores important variables makes the results suspect.<p>Many drivers <i>only</i> drive at night. Many drivers <i>only</i> drive during the day. Some drivers <i>only</i> drive Thursday-Sunday. Some only drive Monday-Friday.<p>So a Monday-Friday day shift driver will generate less revenue than an Monday-Friday night shift driver. Similarly, a Wednesday-Sunday day shift driver will generate less revenue than a night shift driver.<p>And those who work Wednesday-Sunday will generate more revenue than those who work Monday-Friday.<p>And the author focuses only on the revenue side and ignores the costs. The last time I checked, a day shift lease is ~$95+full tank of gas, while a night shift lease is ~$120+full tank of gas, with a premium charged Thursday-Sunday.<p>However, there are <i>other</i> kinds of leases as well. A weekly lease, generally shared by two drivers, will run ~$900-$1000 split between them. And a monthly lease can be even more cost-effective.<p>And those leases include maintenance on the vehicle, insurance and vehicle storage.<p>While it's interesting to see the analysis of how the fee structure generates revenue, the author ignores a whole raft of other variables which directly impact on revenue generation.<p>Lastly, the author asserts that it's the "antiquated" taxi meter fee structure that has caused drivers to be "progressively worse-off."<p>I don't see how he was able to draw that conclusion from the data presented.<p>Edit: Fixed typos and edited for clarity
> We can see that a higher mean and a higher standard deviation result in higher option value.<p>This is a pretty unconvincing argument, because increasing the standard deviation increases the expected value of a lognormal distribution, even without any weird option payoffs being involved.
FWIW, a nice article covering how the current pandemic affected cabbies[0] also reveals some of the costs they pay out. While the article has a bit of fluff what many don't understand that under normal conditions a driver of a regular cab leases their car per shift in addition to credit card processing and more<p>[0]<a href="https://www.marketwatch.com/story/all-hail-new-york-citys-taxi-drivers-2020-05-08" rel="nofollow">https://www.marketwatch.com/story/all-hail-new-york-citys-ta...</a>
This pricing model is weird. I'm not sure where it comes from, but isn't Uber's model (a per-minute rate PLUS a per-mile rate) clearly easier to understand for everyone?
When the Hourly Fare rate is noted as 30 + max(0, Speed - 12) that's missing the 2.50 multipler right? Really it should be Hourly Rate = 30 + (2.50 * max(0, Speed - 12)).<p>Or if you prefer Lispy stuff :)<p>(+ 30 (* 2.5 (max (0 (- speed 12)))))<p>This then means if you drive at 22mph for 1 hour, you earn 30 + (2.50 * max(0, 10)) or $55 which you also get from 2.50 * 22<p>Is this just discounting the constant multiplier since it applies to everything and can be pulled out?
> When the cab drives above 12mph, $2.50 per mile<p>> $2.50 x their average speed if they drove above 12mph<p>Seems like those arent the same... hopefully it isnt both...
There’s a good deep dive on options there, but I’m just stuck on the formula they use for cab fare. $.50/minute of below 12 mph, $2.50 while over.<p>What?? Why would you do it like that? That incentivized jerking up to 12 mph whenever possible.<p>Uber got this right early on: the rate for the time and mileage are separate.