taxi avoidance of regulation

Bangkok Taxi

About 14 million people live in Bangkok. The city is a sprawling maze of streets with the traffic density to match. Most residents drive scooters, but plenty of cars are also to be found. Many (a visible estimate of half) of these are taxis. Because of the cheapness of taxis, it is one of the primary modes of transportation for many. The average cost to drive 3 miles for 20 minutes is roughly $3-4 (the distance between Khao San Rd and Hua Lamphong Railway Station). This, of course, is the cost when the taxis use the meter.

In Bangkok, laws have been passed that regulate the rate for all taxis. There are several classes of taxis, which are set at different rates. The rates themselves are based on a minimum fee and a formula that combines time with distance. As soon as that formula exceeds the minimum, then the price starts increasing. All this is prominently listed in English on each taxi. But this price is set low, and taxis know they can charge more (especially for tourists).

Although it is illegal (not to be confused with “immoral”) for taxis to negotiate a firm price, many taxi drivers will wait outside tourist hotels offering fixed priced trips to places around the city. Their goal is to entice someone with money and unfamiliarity with the law into accepting their services. Informed tourists never negotiate with parked taxis when they want cheap prices. It is always best to flag down a driving taxi and start the conversation with “Meter?”.

But meter taxis have their own problems. One of which is that they sometimes take longer routes or spend more time driving to increase the net fare. Tourists have no concept of time and distance in a sprawling metropolis. These taxis could operate in this fashion with no ramification.

Another drawback is that insisting on metered taxis might sometimes cost a driver. If the end destination does not look profitable for the taxi to quickly pick up a second customer, the driver might refuse service. A metered trip might be less than profitable for some trips.

If a tourist cares about time, firm fixed price negotiation is definitely the method to choose. The driver will have every incentive to minimize both distance and time in an effort to maximize his profit. If the tourist knows roughly the cost to drive to a location with a meter (maybe on a return trip), then this negotiation concludes fairly fast and all parties benefit. (A negotiation also helps relieve the fears that the taxi wants to bring you somewhere and mug you. Why not use the meter to lure people instead? With negotiation, they just want your money and not your life.)

Another benefit of firm fixed price is that the risk is placed on the vendor. Getting stuck in a traffic jam for 45 minutes frustrated one driver who had negotiated a firm fixed price with us. While a metered driver might make money off of standing still, the firm fixed price driver bore the complete cost of loss time and gas to transport us.

Another commonly ignored rule in Bangkok is driver registration. Drivers must register with Bangkok for the rights to own and drive a taxi. Each driver is photographed and the photo is displayed for all to see. Several taxis I entered either displayed no picture or a picture of a completely different man. Where a different man was driving, the driver would instantly become shy. The rear view mirror would be tilted such that no one could get a clear view of their face. They might not speak much, and seemed nervous, glancing at you in the mirrors to see if you notice the discrepancy. The nervousness is a good sign, because the driver is not being nefarious in order to hurt you, but is afraid of you hurting him by turning him in. I made sure to always give extra money to “Uncle Bob”, as I call him. Definitely he was borrowing some relative’s ID in order to make a living for himself. He was increasing the number of taxis on the street, and helping reduce the natural market price of taxi services (even the black market prices).

In short, where the government passes regulations there will be incentives to avoid those same regulations. Although these regulations might keep down costs to tourists, it may not be the optimal policy for everyone always. People respond to incentives. Smart people adapt.

About christopher fisher

The blog is meant for educational/entertainment purposes. All material can be used and reproduced in any length for any purpose as long as I am cited as the source.
This entry was posted in Econ 101, Economics, Incentives Matter. Bookmark the permalink.

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