Taxi Drivers Give Good Econ Lessons, But That Doesn’t Mean You Should Pay Them More

A taxi driver in Tamale recently gave me an interesting lesson in taxi ride pricing.  It turns out that there are two different types of taxis on the road. The most common are drivers that rent the car from someone else. They pay for the fuel they use during the day, and pay a flat rate fee to the taxi owner, usually around 20 GHC per day.  The other type of drivers are those that own the car they drive.

The two types of drivers bear different marginal costs for each taxi ride they give.  The latter, who own the cars they drive, bear the cost of the fuel for the car, their own time (valued at nearly zero in Ghana) and the depreciation of the vehicle due to the ride.  The former, who rent the car at a fixed rate, don’t bear the last cost—the vehicle depreciation.  Therefore they are willing to accept lower prices for each taxi ride.

The driver who told me this of course owned his own car, and was trying to convince me that even though the cost of a taxi across Tamale is always 3 or 4 GHC, it wasn’t fair to pay him less than 5 cedis.

Unfortunately for him, as much as I like a good economic theory, I can also identify a good economic strategy: in this case, using the length of a taxi ride to badger an expat into paying more. (The driver also happened to take the longest possible route through town.) I paid him 4 GHC, consistent with providing incentives to honor the agreed-upon price.