Randomized FIFO Mechanisms

TL;DR

This paper introduces randomized FIFO mechanisms for ride-sharing dispatch that improve efficiency and revenue by incentivizing drivers to accept all trips, reducing cherry-picking and wait times.

Contribution

It proposes a family of randomized FIFO mechanisms that achieve optimal throughput and near-optimal revenue without unfair dispatch rules.

Findings

Randomized FIFO mechanisms achieve first-best throughput.

They attain second-best revenue in equilibrium.

Simulations show significant revenue and throughput improvements.

Abstract

We study the matching of jobs to workers in a queue, e.g. a ridesharing platform dispatching drivers to pick up riders at an airport. Under FIFO dispatching, the heterogeneity in trip earnings incentivizes drivers to cherry-pick, increasing riders' waiting time for a match and resulting in a loss of efficiency and reliability. We first present the direct FIFO mechanism, which offers lower-earning trips to drivers further down the queue. The option to skip the rest of the line incentivizes drivers to accept all dispatches, but the mechanism would be considered unfair since drivers closer to the head of the queue may have lower priority for trips to certain destinations. To avoid the use of unfair dispatch rules, we introduce a family of randomized FIFO mechanisms, which send declined trips gradually down the queue in a randomized manner. We prove that a randomized FIFO mechanism achieves the first best throughput and the second best revenue in equilibrium. Extensive counterfactual simulations using data from the City of Chicago demonstrate substantial improvements of revenue and throughput, highlighting the effectiveness of using waiting times to align incentives and reduce the variability in driver earnings.