Why Is It Hard to Find a Taxi in the Rain?

How a famous study of New York cab drivers raised questions about how people decide how long to work, and why fixed fares create shortages when demand spikes.

When it rains, everyone wants a taxi or auto, and suddenly none are free. Part of the answer is simple demand and supply, but economists found a surprising twist.

Demand jumps, supply does not

When it rains, many more people want rides. If fares are fixed by regulation, as with metered taxis and autos, prices cannot rise to balance demand and supply. The result is a shortage: more people wanting rides than drivers available.

The surprising study

In 1997, economists Colin Camerer, Linda Babcock, George Loewenstein and Richard Thaler studied New York City cab drivers, who could choose how long to work each day. Standard economics predicts drivers should work longer on busy days, when they earn more per hour, and stop early on slow days.

They found the opposite pattern for many drivers: on busy days, drivers seemed to stop earlier. The researchers suggested drivers set a daily income target and went home once they hit it. On busy, rainy days, they reached their target quickly and stopped, just when they were most needed.

The debate

Later research, especially by economist Henry Farber, questioned these findings, arguing that drivers’ decisions were better explained by how many hours they had already worked. Studies using ride-hailing data found drivers largely respond to higher earnings by working more, though some behavioural patterns remain. The debate shows how economists test and refine ideas with data.

Surge pricing

Ride-hailing apps use surge pricing: when demand spikes, prices rise. This:

Encourages more drivers to come online.
Reduces demand from people who can wait or use alternatives.
Helps rides go to those who value them most, but is often seen as unfair.

In India, government guidelines for ride-hailing aggregators cap surge prices at a multiple of the base fare.

The rainy evening

At 6 pm on a rainy evening, hundreds of office workers try to book autos. With fixed fares, many drivers who have already earned enough head home. Riders wait for 30 minutes. On an app with surge pricing, fares double, and more drivers stay on the road, though some riders feel cheated.

Thinking shortages mean there are not enough drivers in the city

Shortages often arise because prices cannot adjust to sudden demand, and because of how drivers decide how long to work.

Key takeaways

Fixed fares cannot rise when demand spikes, causing shortages in the rain.
A 1997 study suggested some cab drivers stop early on busy days after hitting income targets.
Later research questioned the finding, showing how economists test ideas.
Surge pricing balances demand and supply but raises fairness concerns.