FARE ELASTICITIES FOR EXCLUSIVE-RIDE TAXI SERVICES

Abstract

The increased awareness of taxicabs as an important public transportation mode has also increased the need to know how taxi usage changes in response to fare increases. This usage change, or fare elasticity, is important for several reasons, not the least of which is that it indicates whether fare increases will increase or decrease total revenue. In this research a unique data set was assembled to test eight hypothesis regarding taxi fare elasticities. Operatory data were collected from 24 taxi operators in different cities across the United States. Data were also collected in the socio-economic, demographic, and transit service characteristics of these cities. The data cover twenty-two months beginning January, 1976. The hypothesis tests showed that demand for taxi service is primarily inelastic with respect to fare increases. Some evidence was found to substantiate the hypothetis that higher fare levels produce more elastic responses to fare increases; however, this hypothesis could only be tested in a tentative way. Two major conclusions emerge from this project. The first of these is that taxi demand is inelastic with respect to fare changes. The second is that fare changes are not very important in explaining ridership changes.

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