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Do Digital Platforms Reduce Moral Hazard? The Case of Uber and Taxis

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  • Meng Liu
  • Erik Brynjolfsson
  • Jason Dowlatabadi

Abstract

Digital platforms like Uber can enhance market transparency and mitigate moral hazard via ratings of buyers and sellers, real-time monitoring, and low-cost complaint channels. We compare driver choices at Uber with taxis by matching trips so they are subject to the same optimal route. We also study drivers who switch from taxis to Uber. We find: (1) drivers in taxis detour about 7% on airport routes, with non-local passengers experiencing longer detours; (2) these detours lead to longer travel times; and (3) drivers on the Uber platform are more likely to detour on airport routes with high surge pricing.

Suggested Citation

  • Meng Liu & Erik Brynjolfsson & Jason Dowlatabadi, 2018. "Do Digital Platforms Reduce Moral Hazard? The Case of Uber and Taxis," NBER Working Papers 25015, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25015
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    More about this item

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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