08 January 2013

Agonising over tiny moral problems

I take motorbike taxis to work most days here in Kigali. They are convenient, regularly roaming around the streets so you never have to wait long, they are fun, and they are cheap. A trip around town costs somewhere between 50p and £1, depending on how far you are going and what time of day it is. Which isn't bad compared to the £7 you can pay for a return tube trip in London if you forget your oyster card. It is so cheap I haven't bothered using my transport allowance (though perhaps I am under-pricing the small risk of accidents somewhat).

Most expats I speak to seem to worry about getting "ripped off" by paying a higher price than locals. As there is no set price or meter, you need to haggle. It isn't about the money (perhaps 20p), they say, but about the principle. And perhaps they are right. Perhaps they are all intuitive economists, who understand that it is their consumer surplus, and that the driver is engaging in price discrimination. "Consumer surplus" is the name in economic theory given to the gap between the maximum price that the buyer is willing to pay, and the minimum price that a seller is willing to accept. "Price discrimination" is where a seller tries to charge different prices to different customers (based on their ability to pay), in order to capture some of this surplus. Both phrases - consumer surplus, and price discrimination, suggest that maybe the expats are right to feel aggrieved at being conned out of their 20p. But does economic theory really tell us anything about the ethics of this situation?

For a concrete (and realistic) example, suppose the price for locals is about 50p, but the driver asks me for 70p. We are still a long way from the £2 it costs for that single tube trip in London (with the oyster card). Of the £1.50 consumer surplus, the taxi driver (who earns perhaps £2,000 a year at purchasing power parity - roughly the average income in Kigali*), is conning me out of 20p (13% of the surplus). I'm keeping £1.30 (87% of the surplus).

Is that really in any sense wrong? Or on the contrary am I wrong to keep so much of the surplus? Particularly given that the main reason I earn more than 10 times what the taxi driver does is not that I'm smarter or harder working, but that I was lucky enough to be born in a rich country not a poor one. What are the ethics of that?

Of course haggling can be fun. I often make a mock protest at the price, and then just leave a big tip and round up to £1. Thirty pence seems pretty cheap for a very big grin.

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* Just realised that is average household income, so probably a substantial over-estimate of individual income. 

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