ISER SEMINAR NO.194

Topic：Making Lemonade from Lemons: Taxi Drivers' Response to Cancellations and No-shows
Speaker：Ms Chu Junhong，National University of Singapore
Date：November 6，2019
Time：13:30-15:00
Venue：Room 406，Tsang Hin-chi Science Building

Abstract:
Kőszegi and Rabin (2006) show that workers with endogenous income targets respond differently to anticipated changes and unanticipated shocks in their earnings, and only the latter generates behaviors that contradict the neoclassical model of labor supply. In this paper, we study the impact of booking cancellations and passenger no-shows — a source of unanticipated negative income shocks — on Singaporean taxi drivers labor supply and productivity. We find that drivers work longer and earn more per hour following cancellations or no-shows, and the effects are strongest when cumulative income is close to the average shift income and become insignificant when the income is too low or too high. This provides compelling evidence for income targeting labor supply, even in the presence of endogenous reference point. In addition, we find that drivers respond more strongly to more recent cancellations and no-shows, suggesting a dynamic nature of the reference point. Moreover, working longer and increasing productivity are substitutable rather than complementary devices, and are chosen by taxi drivers in their own favor: More experienced drivers tend to increase productivity, and solo drivers tend to work more hours.