New paper shows the moral hazard of an undefined taxi policy

02 . 03 . 2017

Cost control and compliance are two of the most important facets of a defined travel policy, but what happens when a well-intentioned policy goes wrong?

As mentioned this week in The Economist, a newly published paper* from the University of Innsbruck looked into the ‘moral hazard’ of taking a taxi ride in an unknown city. The three academics asked researchers to take 400 taxi rides across 11 different routes in Athens, Greece. During all of the trips the researchers were to mention they were not familiar with the city, while half were to indicate their employers would be covering the cost.

The study found those who mentioned their employer would be reimbursing their expense paid on average of 7% higher fare and were 17% more likely to be overcharged.

The concept of moral hazard highlights the importance of choosing trusted partners for business travel.

As part of Cabfind’s managed taxi service, our billing team check every taxi booking cost against the expected price. If discrepancies exist, we’ll speak to our supply chain and ensure the customer is charged fairly. This includes any hidden surcharges such as airport pick-up fees and the correct day or night rate.

The paper mirrors similar results found in Cabfind’s taxi expense review. A survey of 500 respondents from across the UK shed light on how businesses manage their taxi requirements. A total of 76 per cent of respondents said they tip a driver 13% on average, while among London based travellers this figure was even higher.

The practice of receiving a blank receipt from taxi drivers is well known, however a staggering 36 per cent of respondents admitted they often forget the taxi charge before writing it down leading to the potential for overclaiming. Without a defined taxi travel policy, the hidden costs for businesses can really mount up. Cabfind’s team of analysts anticipate that a company with an annual taxi expenditure of £500,000 could be facing hidden additional costs of approximately £33,000. You can download a free copy of our report at http://www.cabfind.com/hidden.

At Cabfind we work with organisations to drive down the cost of taxi travel, provide duty of care to business travellers and ensure compliance with travel policies. To find out how a managed taxi service can provide value to your travel policy,  contact Cabfind today.

* Second-Degree Moral Hazard in a Real-World Credence Goods Market” by Loukas Balafoutas, Rudolf Kerschbamer and Matthias Sutter, The Economic Journal, February 2017

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