Do Cab Drivers Charge for Congestion?A Traffic Field Experiment in Lima, Perú

Little is known about how accurately individuals perceive externalities and how this perception affectbargainingbehavior.This paper uses the setting of unregulated taxi system in Lima, Peru to analyze taxi drivers’ ability to transfer congestion costs into higher fares.In unregulated taxi systems in which taxi drivers and customers bargain over trip fares.When congestion increases travel times also increase, in this context parties also bargain over who pays a larger share of the uncertain congestion costs.The experiment involved professional commuters hailing taxis and negotiating fares at different times of day between specific locations with alterative route choices as treatments.A total of 1100 trips were conducted following the same bargaining protocol and the randomly assigned route treatments, from which taxi fares, travel times and routing decisions were collected.Results show that taxi drivers increase fares according to route’s expected travel times, but they do not increase fares enough to prevent driver’searnings per minute from decreasing.Fares for congested trip sare one-third lower than metered fares’constructed estimates.Experience drivers learn to avoidc ongested routes by detouring to longer but speedier routes made out of smaller streets.These results highlight the fact that unregulated taxi systems are successful at generating incentives for taxi drivers to make optimal routing decisions, but they also highlight a driver’s limitations at pricing congestion costs of requested congested routes.