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Taxi fare theorizing

December 19, 2011

Taxi fares here are determined by a simple government-issued(?) table listing prices for all areas of the city (theoretically, although the gringo tax still applies as well). At first I thought this seemed really smart, since now the taxi’s interests are perfectly aligned with the passenger’s – he won’t get paid any extra for dawdling or long-hauling so he wants to (safely) get from point A to point B as quickly as possible, just like you. However this only applies once you’re actually in the taxi. Taxis will often refuse to take you if they expect to get stuck in bad traffic, making it nearly impossible to get to busy areas of the city during daytime hours. So now I’m curious as to what’s actually the social optimal pricing methodology for taxis. This flat-rate system could still conceivably be socially optimal, since it encourages taxis to avoid high-traffic areas, preventing even worse traffic jams. But it seems this system would work a lot better in conjunction with a city-wide, traffic-based toll system, which would likely go a long ways towards reducing traffic jams and thus taxis wouldn’t have to be as concerned about getting stuck in a bad spot. Until that happens though, what’s the best alternative?

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