Welfare Impacts of Entry Regulation and Formalization: Evidence from Kenya and Nigeria's Mototaxi Sector

Driving a motorcycle taxi is a ubiquitous occupation in many East and West African cities. Nigeria and Kenya have an estimated eight and two million drivers respectively - four percent of each country’s total population. Minimal barriers to entry explain the popularity of this difficult and dangerous form of entrepreneurship. Learning to drive takes only a few days, most drivers rent their vehicle, and licensing and insurance requirements are rarely enforced. Drivers, overwhelming young men who support large families and have few employment alternatives, are typically oversupplied. Increasing barriers to entry in the mototaxi sector could improve both driver (and social) welfare for at least a few reasons. First, the marginal driver entering the market likely makes other drivers worse off. If this business-stealing effect outweighs the effect of price competition, restricting entry would also increase social welfare. Second, it is common for small networks of drivers to exert market power. Drivers often seek membership to designated pick-up areas called “stages”, and within these stages, collude to inflate trip prices. Drivers who cannot gain access to these networks are harmed by such price-fixing, as is the commuter population. Finally, the lack of licensing and training hinders drivers’ ability to prioritize safety and to signal skills such as safe driving or route knowledge to customers. Regulatory intervention and app-based ride-hailing platforms are beginning to affect entry into the sector. At one extreme, Lagos and Nairobi recently imposed outright bans on mototaxis, citing concerns about lawlessness, crime, and road safety. These bans prompted protests, bribery, and pleas for alternative regulation. Other cities are promoting driver training programs, encouraging drivers to join unions, and considering permitting only app-based drivers in certain areas. The research will ask how these attempts to regulate and formalize the sector affect employment and job quality by influencing driver collusion, safety, and skill-signaling. Ultimately, researchers aim to work with a ride-hailing company (or drivers’ association) to randomize the intensity of driver training, onboarding, and safety incentives within a city and study effects on driver composition, wages, hours, helmet use, and accident rates.