Fining drivers hasn’t worked. A model suggests penalizing the delivery app companies
The popularity of online food-delivery services such as Doordash and Grubhub exploded during the pandemic and that has resulted in a surge of traffic collisions involving the apps’ drivers.
The cause is simple: Customers don’t want to wait too long for their orders, so, to win business, the services promise ever-shorter delivery times. And that puts pressure on drivers, who are primarily independent contractors, to ignore traffic laws.
In China, which accounts for nearly 60% of the world’s online food-delivery market, cities have imposed stiff penalties on drivers, yet the number of collisions has continued to increase. For drivers, the risk of a fine can be seen as small compared with the penalty for a late delivery.
Going after drivers is doomed to fail, a working paper suggests, because it targets the wrong culprit. It’s more effective to penalize the delivery service.
Paltry Fines Won’t Work, But Profit-Hurting Fines Might
Punishing the drivers ignores the fundamental problem — the delivery time promised by the service platform. Only the threat of profit-hurting fines will give companies an incentive to set delivery times that won’t encourage unsafe driving.
“Overall, we find that it is optimal for the government to attack the root cause of these meal delivery violations and accidents: penalize the platform, not the drivers,” write the authors, Indiana University’s Wenchang Zhang, UCLA Anderson’s Christopher S. Tang, Chinese University of Hong Kong’s Liu Ming, and Peking University’s Yue Cheng.
Restaurant food delivery is nothing new. And, indeed, unsafe driving brought on by delivery deadlines has been a problem in the U.S. Domino’s for years had a 30-minute guarantee and its management stuck to the promise even in the face of multiple deaths resulting from collisions involving Domino’s drivers. The company finally abandoned the promise after a $79 million jury verdict in 1993, a case it later settled for an undisclosed sum.
App-based delivery services have revisited the problem on cities at a far larger scale. They make it simpler to order and have greatly expanded the range of meal options. Pandemic lockdowns suddenly made the service seem like a necessity. Global revenues for the sector rocketed to a projected $357.6 billion in 2023 from about $131.6 billion in 2018, according to a recent analysis from Statista.
As the number of app-based services grew, promising faster deliveries was one way they could compete. For Meituan, the largest meal delivery platform in China, 60 minutes was the standard delivery time in 2016 for customers within 3 kilometers — less than 2 miles — from the restaurant. By 2019, that had fallen to 28 minutes. Customer surveys found that most expect a meal within 30 minutes and aren’t willing to wait more than 40 minutes.
Rapid growth in the services combined with shorter delivery times led inevitably to more collisions. In the first half of 2018, Nanjing, China, reported 3,242 delivery-related traffic incidents that combined caused three deaths and more than 2,400 injuries. Shanghai counted 43,000 traffic violations involving delivery drivers in 2020. While numbers in the U.S. are hard to come by, nearly half the drivers surveyed by researchers at Cornell University said they had been in a collision while making a delivery.
In contrast with traditional food delivery in which drivers are employed by restaurants, with app-based services, drivers are independent contractors (or employed by third-party logistics companies). Delivery services are largely immune from liability for collisions caused by their drivers.
So cities have targeted drivers with escalating penalties. Chinese officials have increased fines for reckless driving, while the city of Shenzhen will impound the vehicles for delivery drivers involved in a traffic violation or collision. Still, violations in the city were three times higher in 2021 than the year before.
Fines have proved ineffective because they are considerably lower than the penalties drivers face for making a late delivery. For most violations, drivers could expect a fine of no more than 50 yuan, roughly $6.98. However, a late delivery or customer complaint could result in a penalty of up to 1200 yuan, or roughly $167.72.
Balancing Safety and Competitive Delivery Service
To identify a policy that would reduce collisions without strangling the earnings of either the delivery services or their drivers, the authors used a game-theory model to analyze the effects of different policies on delivery times, customer fees and payments to drivers.
In the model, the company takes the order, determines the delivery time and sets the delivery fee to the customer and the payment to the driver, who can accept the order or not. Some customers want fast delivery and will pay more for the service. Others are more patient and prefer lower fees.
If the company sets a delivery time low enough that a driver has to flout traffic laws, it can raise payments enough to give an incentive to accept the order and threaten late-payment penalties higher than any the city will impose. Therefore, penalizing drivers isn’t enough to prevent unsafe driving, the analysis suggests.
The only way to lower the risk of collisions is to lengthen target delivery times, and the only way to do that is by penalizing the company. However, the penalty can’t be too severe, because the company has to compensate for longer delivery times by charging lower fees. If the penalty is too high, the company will simply scale back its delivery territory, leaving some demand unserved and reducing the overall value of the service to customers, the company and its drivers.
“It is socially optimal for the government to set [the penalty] in a way that strikes a balance between the value created by the platform’s participation and the public loss incurred by risky deliveries,” the authors write.
UCLA Distinguished Professor; Edward W. Carter Chair in Business Administration; Senior Associate Dean, Global Initiatives; Faculty Director, Center for Global Management
About the Research
Zhang, W., Tang, C. S., Ming, L., and Cheng, Y. (2022). Reducing Traffic Incidents in Meal Delivery: Penalize the Platform or its Independent Drivers?