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Optimal contract design for ride-sourcing services under dual sourcing

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  • Dong, Tingting
  • Xu, Zhengtian
  • Luo, Qi
  • Yin, Yafeng
  • Wang, Jian
  • Ye, Jieping

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 pre-specified 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.

Suggested Citation

  • Dong, Tingting & Xu, Zhengtian & Luo, Qi & Yin, Yafeng & Wang, Jian & Ye, Jieping, 2021. "Optimal contract design for ride-sourcing services under dual sourcing," Transportation Research Part B: Methodological, Elsevier, vol. 146(C), pages 289-313.
    • Handle: RePEc:eee:transb:v:146:y:2021:i:c:p:289-313
    DOI: 10.1016/j.trb.2021.01.014
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    References listed on IDEAS

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    3. Li, Manzi & Jiang, Gege & Lo, Hong K., 2023. "Optimal cancellation penalty for competing ride-sourcing platforms under waiting time uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 174(C).
    4. Tian, Lijun & Jiang, Xiaolan & Wu, Wenxiang & Huang, Haijun, 2024. "Becoming a freelancer or contractor? Drivers’ contractual mode and schedule decisions in a dual sourcing market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 185(C).
    5. Zhao, Meng & Li, Bin & Ren, Jiali & Hao, Zhihua, 2023. "Competition equilibrium of ride-sourcing platforms and optimal government subsidies considering customers’ green preference under peak carbon dioxide emissions," International Journal of Production Economics, Elsevier, vol. 255(C).
    6. Shetty, Akhil & Li, Sen & Tavafoghi, Hamidreza & Qin, Junjie & Poolla, Kameshwar & Varaiya, Pravin, 2022. "An analysis of labor regulations for transportation network companies," Economics of Transportation, Elsevier, vol. 32(C).

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