Optimal Contract Design for Ride-Sourcing Services Under Dual Sourcing

37 Pages Posted: 31 Aug 2020

See all articles by Tingting Dong

Tingting Dong

Harbin Institute of Technology, Department of Transportation Engineering

Zhengtian Xu

George Washington University - Department of Civil and Environmental Engineering

Qi Luo

University of Michigan at Ann Arbor - Department of Industrial and Operations Engineering

Yafeng Yin

University of Michigan, Ann Arbor

Jian Wang

Harbin Institute of Technology

Jieping Ye

DiDi Labs - DiDi Research Institute

Date Written: July 22, 2020

Abstract

To cope with the uncertainty of labor supply from freelance/self-scheduling drivers, some ride-sourcing platforms recruit contractual drivers, who are paid a fixed salary for prespecified work schedules. This paper develops an aggregate modeling framework to examine the practicability of such a dual-sourcing strategy. We investigate the optimal contract design of dual sourcing under demand uncertainty, varying price sensitivity of freelancers, and heterogeneity in drivers’ risk attitude. Our results uncover the conditions under which dual sourcing benefits both the platform and drivers. We show that the platform’s staffing and pricing decisions are most responsive to freelancers’ price sensitivity. When the price sensitivity stays adequately low, both the platform and drivers can be better off under dual sourcing compared to the self-scheduling counterpart. On the contrary, with moderate price sensitivity, freelancers will be made worse off by dual sourcing. The dual-sourcing contracts are most effective in markets where drivers are risk-averse.

Keywords: ride-sourcing market, dual sourcing, contract design, freelancers, contractors

JEL Classification: R40

Suggested Citation

Dong, Tingting and Xu, Zhengtian and Luo, Qi and Yin, Yafeng and Wang, Jian and Ye, Jieping, Optimal Contract Design for Ride-Sourcing Services Under Dual Sourcing (July 22, 2020). Available at SSRN: https://ssrn.com/abstract=3658335 or http://dx.doi.org/10.2139/ssrn.3658335

Tingting Dong

Harbin Institute of Technology, Department of Transportation Engineering ( email )

China

Zhengtian Xu

George Washington University - Department of Civil and Environmental Engineering ( email )

800 22nd Street NW
Washington, DC 200052
United States

Qi Luo

University of Michigan at Ann Arbor - Department of Industrial and Operations Engineering ( email )

1205 Beal Avenue
Ann Arbor, MI 48109
United States

Yafeng Yin (Contact Author)

University of Michigan, Ann Arbor ( email )

2350
Hayward Street
Ann Arbor, MI 48109
United States

Jian Wang

Harbin Institute of Technology ( email )

Heilongjiang
China
0451-86282840 (Phone)
0451-86412866 (Fax)

HOME PAGE: http://homepage.hit.edu.cn/wangjian2012 copy

Jieping Ye

DiDi Labs - DiDi Research Institute ( email )

Beijing, Haidian District 100085
China

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