Pricing Schemes and Seller Fraud: Evidence from New York City Taxi Rides

Different pricing schemes gives sellers different financial incentives to defraud consumers. Using rich microdata on New York City taxi rides, we examine the differences in traveled distance, duration and fare between trips taken by non-local passengers and those by comparable local passengers. We find that, for trips subject to a two-part tariff, the discrepancies are larger when the variable rate is higher, or when the expected post-dropoff occupancy is lower; furthermore, the impact of the post-dropoff occupancy is more pronounced when the variable rate is higher. In contrast, trips subject to a flat fare scheme do not exhibit these patterns.