Dynamic Pricing in a Labor Market: Surge

Pricing and Flexible Work on the Uber Platform

M. Keith Chen∗ and Michael Sheldon
December 11, 2015

Abstract
This paper studies how the dynamic pricing of tasks in the “gig” econ-
omy influences the supply of labor. A large economic literature has ex-
plored labor supply when workers can flexibly choose how long to work
each day. In a study of taxi drivers, Camerer et al. (1997) claim that
drivers quit when they hit a daily income target, consequently driving
less when hourly earnings are high. If general, this behavior would under-
mine the benefits of emerging “sharing economy” markets where tasks are
dynamically priced. In this paper, we study how driver-partners on the
Uber platform respond to the dynamic pricing of trips, known as “surge”
pricing. In contrast to income-target findings, we find that Uber partners
drive more at times when earnings are high, and flexibly adjust to drive
more at high surge times. A discontinuity design confirms that these ef-
fects are causal, and that surge pricing significantly increases the supply
of rides on the Uber system. We discuss the implications of these findings
for earnings, flexible work, and the efficiency of dynamically-priced labor
markets.

∗ Chen: UCLA Anderson, [email protected]. Sheldon: University of Chicago,

[email protected]. Comments are welcome at [email protected]. We thank

Franziska Bell, Judith Chevalier, Jonathan Hall, Barry Nalebuff, Connan Snider, Molly
Spaeth, and seminar participants at Princeton, RAND, UCLA, and USC for generous feed-
back and suggestions. All errors in this draft are the responsibility of the authors. Disclosures:
Chen currently serves as the Head of Economic Research for Uber, where he designed the most
recent surge algorithm. Sheldon held a summer internship at Uber. Keywords: labor supply,
income targeting, dynamic pricing, ridesharing, two-sided markets, the sharing economy.

1
In many markets, new technologies allow traditional jobs to be divided into dis-
crete tasks that are widely distributed across workers and dynamically priced
given prevailing supply and demand conditions. This “sharing” or “gig” econ-
omy represents a shift away from fixed employment contracts to a more flex-
ible work system, and is most common in two-sided markets in which a firm
acts as a platform to connect service providers and consumers. One prominent
example of this is the ride-sharing company Uber, which connects riders and
driver-partners,1 and dynamically prices trips using a system known as “surge”
pricing. While there is broad consensus among economists that platforms like
Uber increases consumer welfare,2 less attention has been paid to its effects on
the labor market in terms of earnings, work flexibility, and overall efficiency.
In the case of Uber, qualified driver-partners earn fares by providing rides
on the Uber platform, and can use the platform as much or as little as they
want. Drivers on the Uber platform enjoy hours flexibility, and must decide
both how much and when they wish to drive. Given this flexibility, a central
question is the extent to which firms can influence the supply of services on
their platforms, particularly in the short term. Indeed, the income-targeting
literature would suggest that perversely, increasing the price of services might
actually decrease the supply of services on these platforms.
This paper aims to measure how the dynamic pricing of tasks on online
“sharing” and “gig” economy platforms influence the supply of labor on the
intensive margin.3 Central to this question are the characteristics of workers’
labor supply elasticities; that is, the responsiveness of supply hours to changes in
the prevailing price of services. We measure and characterize these elasticities for
drivers on the UberX platform, and find significantly and substantially positive
supply elasticities. In addition, we find that increases in the “surge” price of
Uber trips significantly decreases the instantaneous stopping rate of drivers on
the Uber platform. That is, drivers appear to dynamically adjust their schedules
to drive longer and provide more trips at times with high surge prices. This
suggests that surge pricing significantly increases the number of trips that occur,
and boosts the overall efficiency of the Uber system.

1 Supply Elasticities and Flexible Work

There is a large empirical literature that studies the magnitude and direction of
labor supply elasticities. A substantial portion of the literature has found evi-
1 As used in this paper, a ’driver-partner’ is someone who earns income providing rides on

the Uber platform.

2 Surveys of prominent economists show broad agreement that platforms such as Uber ben-

efit consumers: http://www.igmchicago.org/igm-economic-experts-panel/poll-results?

SurveyID=SV_eyDrhnya7vAPrX7,
and that in particular, surge pricing accounts for some of these benefits:
http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_
2bC0xviyL9hsNLL.
3 Here we define the intensive labor margin is how much work a person decides to supply

conditional on deciding to work that day.

2
dence of positive supply elasticities, in line with standard theories of intertem-
poral substitution of labor. These studies span a variety of markets including
construction work on the Trans-Alaskan pipeline (Carrington, 1996), stadium
vendors (Ottenginer, 1999), and lobster trappers/divers (Stafford, 2013).4 In
sharp contrast to these studies however, Camerer, Babcock, Loewenstein, and
Thaler (1997) finds surprising evidence of negative earning elasticities in a study
of New York City cab drivers. Positing that taxi drivers choose their hours using
reference points, Camerer et al. justified these findings theoretically by devel-
oping a theory of “income targeting”; the idea that a taxi driver has a daily
income target, after which they are much more likely to stop providing rides.
This results in drivers choosing to work more hours when pay is low, resulting in
negative earnings elasticities. Though Camerer et al. has been an extremely in-
fluential study, it has been controversial. Several subsequent papers have found
support for an income-targeting hypothesis, (Fehr and Goette 2002, Crawford
and Meng 2011, Chang and Gross 2014), while others have failed to find sup-
porting evidence (Ottenginer 1999, Stafford 2013), and others have suggested
that income-target findings are largely econometric artifacts (Farber 2005, 2008,
2014).
Naturally, the direction of labor supply elasticities holds strong implications
for the effectiveness of a dynamic labor-pricing mechanism. Firms such as Uber
promote their dynamic pricing systems by claiming that higher fares not only
temporarily lower demand but also raise supply by incentivizing drivers cur-
rently off the platform to log-on and drivers already on the system to stay on
longer. To the extent that Uber partners systematically income target, the ef-
fect of higher prices on aggregate supply may be muted or even negative. That
is, surge pricing could push more supply off the system than on, potentially ex-
acerbating the supply/demand imbalance. Therefore, determining the direction
as well as the magnitude of high-frequency labor supply elasticities is funda-
mental to the economic justification of not just Uber’s dynamic pricing system,
but any firm employing a dynamic pricing system to incentivize the supply of
services. Here, we study this question using data on Uber driver-partners and
their response to surge pricing.

2 The Uber Marketplace and Surge Pricing

2.1 Overview of the Uber Platform
Uber is a technology firm most well-known for managing a ride-sharing plat-
form.5 Uber provides a mobile application which creates a two-sided market
for on-demand transportation, primarily in metropolitan areas. Riders pay a
fare based on the distance of their trip and the time taken to complete the trip;
4 For
a detailed summary of the literature, see Farber (2008).
5 WhileUber offers products outside of ridesharing, for example UberEATS (on-demand
meal delivery) and UberRush (on-demand courier service), we do not explore those products
here.

3
drivers receive this fare minus a service fee paid to Uber. Payments are remitted
to drivers on a weekly basis, though the amount earned is known by the driver
at the end of each trip.
In this study we focus on UberX, which in the United States is Uber’s peer-
to-peer service. We study UberX not only because it is the most popular, but
because characteristics of other products make them less amenable to study.
For example, drivers on UberBlack are licensed commercial drivers, some of
who work for limo companies and may be paid a fixed salary that does not
respond to surge pricing. Most have outside options which may covary with
Uber market conditions,6 making the interpretation of their time on and off
the Uber platform harder to interpret. The same criticism applies to uberTaxi
drivers (taxi drivers who opt-in to the Uber platform), with the additional
complication that they can also pick up street hails and are not subject to surge
pricing.
Because of these issues, we focus on driver-partners who supply rides exclu-
sively on the UberX platform.7 As a platform, UberX possesses many qualities
which make it an ideal setting in which to analyze intensive supply elasticities.
Scheduling flexibility is a feature of driving on the Uber platform; unlike most
workers in the U.S. economy, UberX partners face no explicit constraints on
when they can work. Conditional on qualifying to drive, an UberX partner can
freely choose the days and hours they are active on the platform.8 Further-
more, in contrast to the taxi industry, short term vehicle leases are not typical;
most UberX partners own and control their own vehicles. These characteristics
avoid much of the “constrained hours” problems with measuring labor-supply
elasticities in more traditional labor markets.

2.2 The Surge-Pricing Mechanism

The Uber platform adjusts its prices using a realtime dynamic algorithm known
as “Surge” pricing, which has generated considerable interest among both the
press and academics.9 Surge pricing is the output of an algorithm which au-
tomatically raises the price of a trip when demand outstrips supply within a
fixed geographic area. Trip prices are adjusted by multiplying the prices of the
underlying components which make up fare –the base fare, the price per mile,
and the price per minute–10 by a multiplier output by the surge algorithm. This
multiplier is communicated to both riders and partners before each trip is initi-
ated; riders see and must confirm, the surge multiplier (SM) before requesting
6 UberBlack drivers may display muted earnings elasticities if low-demand conditions (low

hourly earnings on Uber) correlate to low rates of commercial bookings and vice versa.
7 Drivers can be affiliated with multiple products; for example, both UberX and UberBlack.

We exclude such drivers from the analysis.

8 For an excellent summary of what we know about the characteristics of Uber driver-

partners, see Hall and Kruger 2015.

9 See Chen et al. for an early analysis of surge pricing.
10 There are some components of a fare which are fixed and not affected by the surge mul-

tiplier, such as the “Safe Rides Fee”. These fixed fees do not increase with surge, and are not
are not remitted to the partner.

4
a pick-up. Partners are informed of the current surge multiplier in an area both
when they are offered a pickup and also through heat-maps displayed on the
partner’s mobile application (See Figure 3 below).
Surge multipliers are discrete; they range from a minimum of 1.2 up to a city-
specific maximum in increment of 0.1. The specific multiplier is determined at
any given time by what will be referred to as a generator surge multiplier (GSM),
a continuous value from which the implemented surge multiplier is derived from,
typically by rounding to the nearest tenth. One can think of the GSM as Uber’s
estimate of the “true” market price for rides at a point in space and time, while
the SM is the implemented price. There are a several rules applied to the
generation of the SM from the GSM, such as maximum step sizes (how much
the SM can increase or decrease from its last value) or absolute caps (a city may
place a cap of 2.9 on SMs, for example). In general, unless one of these special
circumstances applies the SM is the GSM, rounded to the nearest tenth. This
distinction is not important for the majority of the analysis, but does play an
important role in Section 4.1 when we use the rounding of GSMs into SMs as
an source of identification.

3 Data and Methods

Our data represent a randomly-drawn subset of UberX partners in Chicago,
Washington DC, Miami, San Diego, and Seattle. For these partners, we observe
ever trip they provided on the Uber platform between September 4th, 2014, and
July 4th, 2015. This comprises roughly 25 million trips.

3.1 Categorization of Sessions

A unique challenge of this dataset is the conceptualization of a partner’s “work-
day” or “shift”. In contrast to papers studying the labor supply of taxi drivers,
the lack of organizational constraints on time worked implies that the supply
choices of Uber partners need not resemble a typical workday. While this flexibil-
ity provides driver-partners with a clear benefit, it poses an analytic challenge in
defining the correct unit of time for analysis, particularly for an income-targeting
hypothesis.
An intuitive first approach would be to study the decision as to how many
hours a driver-partner decides to supply per calendar day. However, this ap-
proach splits in two any driving session which crosses over midnight–which,
particularly on weekends, are times at which many Uber partners choose to
drive. A modified but similar approach is used by Farber (2014) in his analysis
of New York City taxi drivers; instead of separating a day at midnight he defines
a day transition at 4AM, the time of day with the lowest number of drivers on
the road.
Here, we analyze Uber partner choices using a flexible session-based approach
which ameliorates many of these potential biases. We define a session as the
cluster of all trip and application activity that occur without a break of more

5
than 4 hours. That is, a period of partner inactivity greater than four hours
marks the beginning of a new session in the data. Conceptually, the use of a
four-hour gap allows partners to take short breaks for meals or errands without
counting such breaks as ending a session. The “length” of a session is defined as
the total time that the driver is on-app in a session, either serving a ride request,
or online and available to accept a trip dispatch. Given these definitions we
then examine the determinants of both session length and the decision to end a
session.11
Figures 1 and 2 below show the average length of session per driver-partner,
and how much each partner’s sessions deviate from their average session length.12
Uber driver-partners tend to drive multiple short rather than fewer long sessions,
with most sessions ranging between 2 and 5 hours, and the median driver aver-
aging 3.47 hours per session. As figure 2 shows, session lengths also vary widely
within driver. In our sample, roughly 5% of a partner’s sessions are more than
twice as long as their average session, and over 18% are less than half their
average. This suggests that Uber driver-partners regularly take advantage of
the platform’s work flexibility. We now examine the degree to which partners
use this flexibility to respond to both predictable and unpredictable changes in
the price of trips.

4 Results
4.1 Autocorrelation of Income
As Farber (2005) notes, current income is only a rational input to supply de-
cisions if it significantly predicts (immediate) future earnings. That is, your
current income rate should only influence your decision to keep driving if it
meaningfully predicts expected earnings going forward. To verify this interpre-
tation of the effect of current income on supply decisions within our models,
we examine the inter-temporal properties of earnings by calculating autocorre-
lations of the hourly city earnings.13 These are summarized in Table 1.
Average hourly earnings are highly correlated across hours within city in our
dataset. Though the degree of autocorrelation varies by city, in all cases it is
significant and substantially positive. These findings suggest that current earn-
ings are informative of future opportunities, and that partners can use current
earnings as a proxy for future earnings over reasonable time frames.
11 In a supplementary analysis we examine the sensitivity of our results to this definition of

a “session”, and find our results are both qualitatively and quantitatively robust. Under this
definition, our data are comprised of roughly 2.4 million sessions.
12 Session length is measured as the amount of on-app time within a session. So for example,

if during a session from 1 to 6pm a partner takes a 1 hour break and logs off the app, that
session would be measured as 4 hours long.
13 Here, “hourly city earnings” are the average hourly earnings for partners active in the city.

6
 Table 1: Autocorrelations of Hourly Income

Hour City 1 City 2 City 3 City 4 City 5

0 1.000 1.000 1.000 1.000 1.000
1 0.750 0.611 0.463 0.678 0.745
2 0.538 0.483 0.352 0.480 0.588
3 0.399 0.523 0.300 0.400 0.495
4 0.347 0.473 0.272 0.363 0.459
5 0.336 0.403 0.256 0.308 0.448
All reported statistics are significant at the 0.001 level.

4.2 The Length of Sessions: OLS and 2SLS

If partners prefer to drive when their earnings are high, then we would expect
to see longer sessions at those times when realized earnings are high. Our first
set of regressions estimate a simple supply hours model, where we examine the
length of sessions driven by Uber driver-partners at different hourly earnings
levels. The first columns of Table 2 summarize regressions which estimate the
equation:

log(HoursOnShif tit ) = β0 + β1 log(HourlyF aresit )

+β2 (Di ) + β3 (Tt ) + β4 W eatherit + εit (1)

In equation 1 the dependent variable is log(HoursOnShif t), where each obser-
vation is the length of an observed session. HourlyF aresit is calculated as the
ratio of total fares earned in a session toHoursOnShif tit , effectively an hourly
rate. The coefficient β1 on log(HourlyF ares) (of which the driver-partner col-
lects approximately 80%) can be interpreted as a measure of a driver-partners
short-run supply elasticity, subject of course to a host of estimation concerns.
Di is a set of partner fixed effects, and Tt is a set of time fixed effects, includ-
ing month and day-of-week fixed-effects. Finally, we include several weather
controls, including temperature as a quadratic and precipitation in inches.
Common in this literature is “division bias”, the problem that HourlyF aresit
is computed as the total fares earned by a partner in a session, divided by the
number of hours on session, HoursOnShif tit . Because of this, any measure-
ment error in HoursOnShif tit will bias our estimates of β1 in equation 1 down-
ward. While the Uber platform measures on-app time with extreme accuracy
(up to network latency), this may still be an estimation concern if on-app time
is still subject to shocks which are not a function of hourly earnings. To address
this, we also estimate a two-stage model where we instrument for a partner’s
hourly fares with the average hourly fares of all partners in the same city (and
over the same hours), as specified in equations 2 and 3, with first-stage equation:
log(HourlyF aresit ) = π0 + π1 log(HourlyF ares−it ) + υit (2)

7
 Table 2: The Determinants of Session Length

OLS 2SLS
Variables: (1) (2) (3) (4) (5) (6)

Log Own Income 0.145*** 0.197*** 0.168***

(0.00144) (0.00258) (0.00261)
Log Average Income 0.292*** 0.585*** 0.503***
(0.00237) (0.00518) (0.00565)
Constant 1.194*** 1.244*** 1.341*** 1.338*** 1.622*** 1.671***
(0.00156) (0.00251) (0.00628) (0.00237) (0.00504) (0.00783)
Weather Controls X X

Fixed Effects:
Partner X X X X
Month and Day of Week X X
Observations 2,377,210 2,377,210 2,368,340 2,377,210 2,377,210 2,368,340
Number of Partners 63,830 63,830 63,830 63,830 63,830 63,830
R2 0.007 0.013 0.038
All regressions are OLS and 2SLS regressions with Log(Session Length) as the dependant variable.
We report robust standard errors in parentheses; *** p<0.01, ** p<0.05.

and second-stage equation:

log(HoursOnShif tit ) = β0 + β1 log(HourlyF aresit )

+β2 (Di ) + β3 (Tt ) + β4 W eatherit + εit (3)

The results for both the OLS method (Specifications 1-3) and the 2SLS
method (Specifications 4-6) are given in Table 2. Specification 1 includes no
controls and provides an elasticity significantly and substantially greater than
zero, approximately 0.15. Controlling for partner fixed effects in specification 2
increases this elasticity slightly, which decreases again in specification 3 when
calendar effects (month of year and day of week, separately) and weather (tem-
perature in quadratic terms and precipitation totals) are added, resulting in
an elasticity of about 0.17. The results from the fixed-effects (omitted here)
indicate that differences between partners are significant, that partners provide
more hours on the weekend, and drive less hours in response to rain or extreme
temperatures.
Given the “division bias” we discuss above, we rerun the specifications in 1-3
as a two-stage model in 4-6 using the average hourly income of all partners in the
same city (and over the same hours) as an instrument for a partner’s own hourly
income. The specifications progress in levels of fixed effects in the same manner

8
as the OLS estimates. Compared to the OLS estimates, the 2SLS estimates are
substantially higher; more than doubling the corresponding OLS estimates in
all cases and resulting in a supply elasticity of approximately 0.50. This increase
is consistent with the concern that OLS estimates may be downwardly biased
due to measurement error in HoursOnShif tit .
It should be noted that the effect of instruments on our estimates, while
substantial, is considerably less than in Camerer (1997) or Farber (2005). This
is likely because Uber data is measured by a smartphone and displays less mea-
surement error in active-session time. These elasticities are consistently both
statistically and economically positive, so do not support the income-targeting
hypothesis proposed in Camerer et al. (1997). We find that partners work longer
hours when the earnings are high, and that higher prices stimulate supply on
the intensive margin.

4.3 Ending a Session: Modeling the Decision to Stop

Our first analysis closely follows the existing literature, but like those papers
suffers from an endogeneity problem that is difficult to overcome within a work-
hours framework. Earnings levels in the Uber environment are driven by shocks
to both demand and supply; and when earnings variation is driven by sup-
ply, it is likely that both outside options and/or opportunity costs for partners
are strongly correlated with earnings. Therefore β1 can not be unambiguously
interpreted as an income elasticity.
Our second analysis focuses on estimating the effect of unexpected shocks to
earnings, as driven by the Surge Multiplier, on a partner’s decision to continue
or stop driving within a session. To study this decision, we study the predictors
of a trip ending a session. We take the Surge Multiplier that is in effect in
the location where a partner ends a trip, as the best proxy for the earnings
they should expect should they continue driving. Additional controls include
cumulative measures of their session (fare, time, distance traveled, and number
of trips), and current weather conditions. Conceptually, we are gauging how
these factors affect a partner’s decision to continue driving after each trip.

9
 Table 3 summarize regressions which estimate the equation:

exp(zit )
Pr(EndSessionit ) = , (4)
1 + exp(zit )

where:

zit = β0 + β1 SurgeM ultiplierit + β2 CumT ripsit + β3 CumF aresit

+β4 CumHoursit + β5 CumDistit + β6 W eatherit + β7 (Di × Tt × Git ). (5)

In equation 4 the dependent variable is Pr(EndSessionit ), which is the probabil-
ity that an observed trip by an Uber driver-partner is their last for this session.
In equation 5 the most important independent variable is SurgeM ultiplierit ,
which is the surge multiplier that is in effect in the geofence that a trip ends
in, when that trip completes. This is the surge price that would apply to a trip
that immediately begins where a partner currently is after completing their last
trip. The coefficient β1 on SurgeM ultiplierit can be interpreted as a measure
of a driver-partners short-run supply elasticity; it is the effect of multiplicative
increases to trip prices on the log-odds that a partner chooses to stop driving
and end a session.
Our other independent variables control for characteristics of each trip.
CumT ripsit , is the cumulative number of trips already supplied by a part-
ner in this session (and similarly for fares, hours and distance). Di is a set of
driver-partner fixed effects, and Tt is a set of time fixed effects (including Month
and Day of Week fixed-effects), and Git is a set of fixed effects for the geofence
that a ride ends in. All fixed effects are fully-interacted. Finally, we include sev-
eral weather controls, including temperature as a quadratic and precipitation
in inches. Results for a Conditional (fixed-effect) Logit models are reported in
Table 3, where all effects are calculated as odd ratios.14
We begin with a standard Logit in specification 1, which estimates the prob-
ability of ending a session. We see that a unit increase in the Surge Multiplier
leads to a drastic decrease in stopping probability–approximately 50%. Cumula-
tive counters in time (measured in hours) and trips have predictably significant
and positive effects on stopping probabilities, as does distance (measured in
miles). The effect of cumulative fare (in terms of hundreds of dollars) is sig-
nificantly and substantially positive, indicating that partners, ceteris paribus,
are more likely to stop when their earnings are high; a result in support of the
income targeting hypothesis.
The remaining specifications are modeled as conditional Logits with increas-
ingly restrictive fixed effects. Conceptually, by controlling for an increasingly
tight set of partner, session, spatial, and temporal covariates, we can measure
the effect that unexpected changes in the prevailing surge price has on the de-
cision of Uber partners to end a driving session. In the limit these regressions
14 Corresponding LPM models produce qualitatively similar results; results do not appear

to be driven by changes in observations across fixed-effect levels.

10
 Table 3: The Choice to End a Driving Session: Conditional Logits

Conditional (Fixed-Effect) Logistic Regression

Variables: (1) (2) (3) (4)

Surge Multiplier 0.516*** 0.512*** 0.565*** 0.700***

(0.00129) (0.00132) (0.00163) (0.00275)
C. Trips 0.955*** 1.033*** 1.008*** 1.039***
(0.000208) (0.000310) (0.000375) (0.000553)
C. Fare (hundreds) 1.248*** 1.091*** 1.000 0.957***
(0.00144) (0.00212) (0.00249) (0.00361)
C. Time (hours) 1.176*** 1.156*** 1.110*** 1.119***
(0.000504) (0.000602) (0.000722) (0.00105)
C. Distance (miles) 1.003*** 1.010*** 1.009*** 1.003***
(4.02e-05) (5.91e-05) (7.28e-05) (0.000111)
Precipitation (inches) 0.951 0.876*** 1.036 0.797***
(0.0292) (0.0287) (0.0405) (0.0473)
Temperature 0.999*** 1.006*** 1.005*** 1.008***
(0.000175) (0.000208) (0.000240) (0.000330)
2
Temperature 1.000*** 1.000*** 1.000*** 1.000***
(1.64e-06) (1.96e-06) (2.29e-06) (3.22e-06)
Constant 0.124***
(0.000344)
Fixed Effects:
PartnerxDay X
PartnerxDayxHour X
PartnerxDayxHourxGeo X
Observations 25,056,304 23,633,812 14,021,328 5,234,517
We report coefficients as odds-ratios and robust standard errors in parentheses.
*** p<0.01, ** p<0.05, * p<0.1.

11
estimate the degree to which an increase in surge prices and hence per-trip earn-
ings, causally induces Uber driver-partners to provide more rides on the Uber
platform.
Column 2 includes Partner x Day of Week fixed effects, controlling for the
effect of a particular partner on a particular day of week. Most variables of inter-
est remain remarkably similar– responses to surge multiplier, time, and distance
are negligible. The impact of cumulative fare diminishes substantially, losing
over half of its magnitude; however, it still remains significant and economically
substantial in influencing a partner’s decision to stop.
Specification 3 narrows the fixed effect further to the interaction of Partner
x Day x Hour ; defining groups of observations which have multiple entries for
the same partner, day of week, and hour of day. This fixed effect is quite
restrictive, and as such the number of observations our model can use decreases
substantially;15 nevertheless the results and still highly significant and their
interpretation meaningful. Coefficients for time, distance, and trips alter slightly
but not neither substantially nor meaningfully. The effect of the surge multiplier
decreases slightly, but still remains quite powerful. Interestingly, the effect of
cumulative fare goes to 0, suggesting that the evidence in favor of the income
targeting hypothesis is not robust to model specification.
Specification 4 provides an even more aggressive level of fixed effect, Part-
ner x Day x Hour x Geozone. Conceptually, we are grouping observations by
individual partner, day of week, hour of day, and region of city where they end
the trip. That is, we are only comparing trips that the same partner ended
on a Monday, between 2 and 3, in this neighborhood. Sample size decreases
drastically but remains sizable. Coefficients for time, distance, and trips remain
similar. The impact of surge multiplier again decreases, and this time by a
much greater magnitude, but remains a powerful, negative effect on stopping
probability. Cumulative fare now has a negative impact on stopping probability–
provided the same interpretation holds on cumulative as in the previous analysis,
this implies partners are less likely to stop when earnings are high. Thus, the
results with respect to the impact of income on a partner’s decision to stop are
consistent with the results above and neoclassical models of labor supply, and
do not support the income-targeting hypothesis.
The impact the level of fixed effects have on the model highlights the powerful
spatiotemporal influences that are involved with a partner’s decisions–failure to
accurately capture these effects amounts to a potentially large source of bias in
the estimation. The trend in coefficients displayed here tells a very compelling
story– given a higher set of prices, partners will choose to work more than they
otherwise would have. Thus, changes in the surge multiplier directly effect the
supply decisions of partners even after they have decided to drive on a given
day. Furthermore, the coefficient on cumulative fare suggests that the Surge
Multiplier does not even indirectly encourage supply churn by allowing partners
to hit “income targets” sooner. Rather, since partners react to higher cumulative
15 The conditional Logit model requires at least one observation of each outcome within each

fixed-effect group.

12
incomes by driving longer, surge multipliers appear to have a secondary, positive
effect on labor supply through increasing incomes. Overall, it appears that the
dynamic pricing mechanism is very effective in encouraging short-term supply
growth on the Uber platform by encouraging partners already on the system to
contribute more time than they otherwise would have.

4.4 Stopping Model with Running Variable

One concern about the results presented thus far is that, even given the strong
level of fixed effects and controls already imposed, there may be underlying
unobserved elements driving both the change in surge multiplier and a partner’s
decision to stop; thus, the effect of the surge multiplier may be biased. In
Table 4, we run the same conditional Logit models as above, but this time
with a high-order polynomial in the Generator Surge Multiplier–the continuous
number which the surge multiplier is rounded from.
By including both the SM and the GSM in the same model, the coefficient
of the surge multiplier regressor can be interpreted as the average, direct impact
of an increase–akin to a regression discontinuity design. That is, the high order
generating variable should control all underlying covariates provided they do
not jump discontinuously with surge prices, allowing these regressions to isolate
the pure effect of the surge multiplier. The results in Table 4 suggest that surge
multipliers exerts a powerful effect on the stopping probabilities of partners even
under the most stringent of controls. The decrease in this effect compared to
the results in Table 3 for the corresponding models can be attribute to changes
in demand conditions within surge multiplier.

5 Discussion
The results presented here demonstrate the effect of increased earnings on the
supply decisions of partners. In contrast to the income-targeting literature, we
find that in response to surge pricing, Uber driver-partners choose to extend
their sessions and provide significantly more rides on the Uber platform. This
finding remains sizable even with the inclusion of extremely aggressive part-
ner, session, spatial, and temporal controls. These controls, plus the inclusion
of the generator surge multiplier, allow us to measure the supply elasticity of
Uber partners in response to unexpected changes in earnings as driven by un-
predictable variation in surge pricing.
Our findings suggest that Uber partners both drive at times with higher de-
mand for rides, and dynamically extend their sessions when surge pricing raises
earnings. In contrast to the existing literature, we find that Uber driver-partners
do not display behavior consistent with income-targeting. These findings run
contrary to a large literature on the behavior of cab drivers, which found evi-
dence that taxi drivers reduce the supply of rides when demand is unexpectedly
high. Those effects, if they held in the case of Uber surge pricing, would have
significantly reduced the economic gains from dynamic pricing. To the contrary,

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Table 4: Stopping Probabilities with a GSM Running Variable Control

Conditional (Fixed-Effect) Logistic Regression

Variables: (1) (2) (3)

Surge Multiplier 0.730*** 0.774*** 0.805***

(0.00458) (0.00564) (0.00865)
GSM: 5th Order Poly.

C. Trips 1.044*** 1.017*** 1.042***

(0.000354) (0.000431) (0.000624)
C. Fare (hundreds) 1.148*** 1.033*** 0.989**
(0.00256) (0.00300) (0.00433)
C. Time (hours) 1.144*** 1.103*** 1.107***
(0.000679) (0.000823) (0.00118)
C. Dist. (miles) 1.008*** 1.007*** 1.003***
(6.91e-05) (8.61e-05) (0.000128)
Precipitation (inches) 1.068* 1.304*** 1.019
(0.0406) (0.0595) (0.0708)
Temperature 1.001*** 1.000* 1.004***
(0.000233) (0.000271) (0.000369)
Temperature2 1.000*** 1.000*** 1.000***
(2.23e-06) (2.61e-06) (3.64e-06)
Fixed Effects:
PartnerxDay X
PartnerxDayxHour X
PartnerxDayxHourxGeo X
Observations 19,051,247 10,599,081 4,112,257
We report coefficients as odds-ratios and robust standard errors in parentheses.
*** p<0.01, ** p<0.05, * p<0.1.

14
we find large and pervasive positive supply elasticities, suggesting that dynamic
pricing, at least in the case of Uber, significantly increases the efficiency of the
ride-sharing market.
That we do not find income-targeting on the session-hours level is particu-
larly surprising since this analysis is extremely similar to the seminal Camerer et
al. and the literature that followed it. While we do not directly reanalyze their
data, one possible explanation of this discrepancy is that we have extremely pre-
cise measurements of Uber partners’ time on session; Farber emphasizes that
measurement error in this variable has the ability to produce spurious income-
targeting findings (Farber 2005, 2008). Another possibility is that on the Uber
platform, earnings variation arises through extremely salient surge-induced in-
creases in earnings-per-trip, rather than indirect earnings fluctuations through
trip frequency, as in taxi markets. Finally, Uber partners interact with the plat-
form through a smartphone interface that allows them to know current prices
and session statistics like cumulative earnings, time, and trips (see Figure 3 for
an example screenshot). It is possible that with access to more and more easily
organized information, Uber driver-partners need not rely on rules of thumb like
a daily income target.
Finally, our work is one of the first to document the degree to which platforms
such as Uber enable extremely flexible work schedules, and the degree to which
Uber driver-partners take advantage of that flexibility. Even under a generous
4-hour break definition, the median driver-partner averages less than three and
a half hours per session, and varies that session length considerably to take
advantage of surge pricing. To the degree that the “sharing economy” promises
greater work flexibility, Uber driver-partners appear to take advantage of that
flexibility in ways that increase their hourly earnings.

6 Conclusion
Overall, our findings support the idea that dynamic pricing significantly in-
creases the efficiency of on-demand service markets. On the Uber platform
surge pricing appears to increase the supply of rides on the Uber platform by
incentivising driver-partners to provide more rides than they would have ab-
sent surge prices. We find evidence that this happens both immediately (by
immediately lengthening sessions), as well as the longer time frames over which
driver-partners plan their session schedules. While we investigate data on only
the Uber platform, our findings suggest that dynamic pricing could significantly
increase the efficiency of many of emerging “gig” markets where jobs are widely
distributed across workers and in which prevailing market conditions can fluc-
tuate across both time and location.

15
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7 Figures

Figure 1: Uber Partners’ Average Session Lengths

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Figure 2: Variation of Session Length from a Driver’s Average

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Figure 3: Tools on the Uber driver-partner smartphone application.

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