Who Benefits From Surge Pricing? [Job Market Paper]
Last updated: November 2019
In the last decade, new technologies have led to a boom in dynamic pricing. I analyze the most salient example, surge pricing in ride hailing. Using data from Uber in Houston, I develop an empirical model of spatial equilibrium to measure the welfare effects of surge pricing. My model is composed of demand, supply, and a matching technology. It allows for temporal and spatial heterogeneity as well as randomness in supply and demand. I find that, relative to a counterfactual with uniform pricing, surge pricing increases total welfare by 3.66% of gross revenue. The gains mainly go to riders: rider surplus increases by 6.52% of gross revenue, whereas driver surplus and platform profits decrease by 1.63% and 1.18% of gross revenue, respectively. Disparities in driver surplus are magnified. Riders, on the other hand, are overwhelmingly better off.
Surge Pricing Solves the Wild Goose Chase
(with Dan Knoepfle and Glen Weyl)
Last updated: March 2018
Ride-hailing apps usually match more efficiently than taxis, but they can enter a failure mode anticipated by Arnott (1996) that we call wild goose chases. High demand depletes the platform of idle drivers, so cars must be sent to pick up distant customers. Time wasted on pick-ups decreases drivers' earnings, leading to exit and exacerbating the problem. Raising prices, either by keeping them consistently high or "surge" pricing only at high demand times, brings demand back under control and avoids these catastrophic failures. Banning surge pricing would thus likely result in always-high prices. Alternative solutions would undermine ride-hailing's brand promise.
Service Quality in the Gig Economy: Empirical Evidence about Driving Quality at Uber
(with Susan Athey and Bharat Chandar)
Last updated: September 2019
The rise of marketplaces for goods and services has led to changes in the mechanisms used to ensure high quality. We analyze this phenomenon in the Uber market, where the system of pre-screening that prevailed in the taxi industry has been diminished in favor of (automated) quality measurement, reviews, and incentives. This shift allows greater flexibility in the workforce but its net effect on quality is unclear. Using telematics data as an objective quality outcome, we show that UberX drivers provide better quality than UberTaxi drivers, controlling for all observables of the ride. We then explore whether this difference is driven by incentives, nudges, and information. We show that riders' preferences shape driving behavior. We also find that drivers respond to both user preferences and nudges, such as notifications when ratings fall below a threshold. Finally, we show that informing drivers about their past behavior increases quality, especially for low-performing drivers.
The Logic of Violence in Turf War
(with Dorothy Kronick) Revise and resubmit, American Political Science Review. Last updated: June 2019
Drug traffickers sometimes share profits peacefully. Other times they fight. We propose a model to investigate this variation, focusing on the role of the state. Traffickers with long time horizons can stick to peaceful agreements, but impatient traffickers use violence. How much violence depends on policy. Seizing illegal goods generally increases trafficker profits, and higher profits fuel violence. Killing kingpins makes crime bosses short-sighted, also fueling conflict. Only by targeting the most violent traffickers can the state reduce violence without increasing supply. These results help explain empirical patterns of violence in drug war, which is less studied than interstate or civil war but often as deadly.
Are Elasticities Greater in the Long Run? Beyond Le Chatelier's Principle.
Last updated: June 2019
A classical result in microeconomics is that supply is more elastic in the long run than in the short run. This result is obtained from Le Chatelier's principle in a static environment. I build a more realistic, dynamic model in which firms take into account intertemporal relations. The classical result holds when firms produce intertemporal complements. But the opposite holds with intertemporal substitutes: firms are most responsive to short-lived shocks, and their initial response to permanent shocks is greater than the final response. I extend these results to consumer theory, and I apply them to carbon regulation and optimal taxation.
Scarcity without Leviathan: The Violent Effects of Cocaine Supply Shortages in the Mexican Drug War
(with Daniel Mejía and Pascual Restrepo)
Forthcoming, Review of Economics and Statistics.
This paper asks whether scarcity increases violence in markets that lack a centralized authority. We construct a model in which, by raising prices, scarcity fosters violence. Guided by our model, we examine this effect in the Mexican cocaine trade. At a monthly frequency, scarcity created by cocaine seizures in Colombia—Mexico's main cocaine supplier—increases violence in Mexico. The effects are larger in municipalities near the US, with multiple cartels, and with strong support for PAN (the incumbent party). Between 2006 and 2009 the decline in cocaine supply from Colombia could account for 10%–14% of the increase in violence in Mexico.