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

In expert markets, different pricing schemes generate different financial incentives for sellers to defraud customers. Using rich microdata on New York City taxi rides, we examine the difference between trip distance of non-local passengers and that of comparable local passengers, and explore to what extent the difference varies with driver financial incentives. We demonstrate that, for trips subject to two-part tariff, the difference is higher when the variable rate is higher or when the post-dropoff occupancy is expected to be lower; however, for trips subject to flat-fare scheme, the difference is unaffected by the fare rate or the expected occupancy