Ever wonder why it’s so difficult to catch a cab on a rainy evening? Common sense suggests the reason is that people prefer riding to walking when it’s raining. Given a fixed supply, cabs are less likely to be available since more people want them.
While this explanation seems obvious, economic theory suggests otherwise. As background, most cab drivers are independent contractors who pay a fixed fee to a taxi company to use a cab for up to 12 hours. The drivers keep all the fares they collect and can return the car at any time before the 12 hours are up. If the drivers were following the law of supply and demand, they would work the maximum possible hours when it rained because it would be easier to get fares. Therefore, there should be more cabs on the road when it rains, balancing out the more people who want cabs. Economic theory doesn’t explain why cabs are hard to find in the rain.
Research provides an alternative explanation called “daily income targeting.” Taxi drivers report that they decide how long to work each day by setting an income target for the day. As soon as they reach that target, they return the cab.
For example, a cabbie might want to earn $150 more than the fixed fee he has to pay to the taxi company. If he makes $25 per hour (as he might when it rains), he only need to drive 6 hours. On slower days, he might earn $15 per hour and have to drive 10 hours. As such, income targeting counterintuitively predicts that cabbies will drive less hours on good days.
So, if you’re trying to catch a cab on a rainy day, you’ll probably be fine – most drivers won’t have yet reached their income target for the day. But if it’s after dinner, expect to wait longer. Not because more people want cabs but because more cabbies have decided to go home.
And, if you’re a cab driver who reads this blog, you can make more money if you work a full shift when it rains. I’d appreciate the ride.