Seminar Vol. 194

Title: Making Lemonade from Lemons: Taxi Drivers' Response to Cancellations and No-shows

Speaker: Junhong Chu, NUS Busines School

Time: November 6th, 2019      13:30-15:00

Venue: Conference Room 406, Zengxianzi Science Hall

About the speaker:

Junhong Chu is Associate Professor in the Department of Marketing and Academic Director of the MSc in Marketing Analytics and Insights at NUS (National University of Singapore) Business School. In 2006, she earned Ph.D. in Marketing from the University of Chicago. Junhong Chu’s research interests include firm and consumer behavior and welfare, as well as China’s economy and market.

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.