I did hear Prof. Kaushik Basu speak about this research issue in one of his talks. Though, I thought this must be some work under progress. However, I realised he worked on its pretty early.
In this 1983 paper, he looks at this question on why people wait to pay after their taxi-ride?
When we travel by taxi, we do not usually make an effort to run away without paying. Some economists have tried to model crime and marriage in terms of individual rationality, so they would no doubt explain our scrupulousness in terms of the probability of being caught and the agony of being jailed. In order to permit a relatively rigorous discussion let us place the problem at a greater level of abstraction.
An individual gets off from a taxi at a place where there is no one sufficiently near to bear witness as to whether he pays the fare or not; and in the absence of a witness, it is pointless contacting the police (with some police forces this is unconditionally so). Further, this is a large city and the passenger does not expect to require the services of this cabman in the future. Would the passenger try to walk off without paying? I think there will be no disagreement that, even in this situation, a vast majority of human beings would not choose to default. How do we explain this, excepting in terms of our sense of values, or our morality, or custom (essentially something beyond selfishness)?
Econs say this is rational behavior on part of individuals:
The economist’s ‘trained incapacity’ does not allow him to give in so easily. I posed this question to a number of economists; and barring one or two exceptions, the response was more or less the same: While the passenger’s sense of values may indeed be the cause of his adherence to the law, the act could also be explained purely in terms of ‘rationality’. Taxi drivers are often quite strong (which, judging by my small sample, is by no means the most vulnerable assumption). So if the passenger tried to button up his pockets, the taxi-driver would in all likelihood either himself assail the passenger or gather people and try to ensure payment. It is this risk which makes the passenger ‘behave’. This is a plausible argument and let us accept it.
If one accepts this, it opens up further qs:
But the moment we do so we land ourselves in a problem. The crack however appears elsewhere. It is now the taxi-driver’s rationality which becomes questionable. Why do we expect him to retaliate against a passenger who tries defrauding him, and to attempt recovering the fare at the risk of or despite the unpleasantness of a scuffle? To me, the most plausible reason seems to be his injured sense of fairplay or anger at his customer’s violation of social norms (no doubt catalyzed by the fact that he is at the receiving end). But to admit this is to grant the role of commonly accepted values – no matter how indirectly – in the prevention of anarchy. This leaves only one way out: to explain the taxi-driver’s response in terms of his selfishness.
To do so, one would have to argue that the agony of gathering people and a scuffle may be less than the reading on the meter. This may well be valid. But now comes the main difficulty. If that is so, why should the taxi-river not try the same tactic even if the passenger has paid? That is, he could take the fare and pretend that the passenger never paid and go through the same action as he would if the passenger had defrauded him, and thus end up collecting perhaps twice the correct fare, not to mention the tip. Everybody would agree, taxi-drivers do not behave in this way. Therefore they must be irrational, because it was supposed, a few lines ago that this behavior is the one in conformity with their self-interest.
The idea behind this analysis is to show that selfishness alone does not work. People care for others:
Herein lies the crux of the matter. The object of the above exercise was not to show that human beings are not guided solely by selfishness; but to demonstrate that given the order that attends the multitude of economic exchanges in society and the absence of anarchy and fraud, this must be so. The ‘invisible hand’ would not be able to coordinate a multitude of selfish acts to bring order – as it is supposed to do – if it were not aided by the adherence of individuals to certain commonly accepted values. The example in this paper shows that we can maintain that a subset of human beings conform to the “law” entirely because of self-interest; but that rules out, by implication, the same assumptions for all the remaining individuals. Thus we have to make room for our sense of values, however small.
Further, how dirtying streets is fairly rational thing to do:
Let us assume, as is quite reasonable, that (i) every city dweller prefers his city to be clean rather than dirty, and (ii) one person throwing litter on the streets does not make a clean city dirty. It is easy to see that each individual, acting atomistically, would prefer to throw litter on the street rather than go through the trouble of looking for a garbage bin to dispose of it. It being rational for each individual to litter the streets, all citizens – if they were rational – would do so. The city would be a dirty one and (given (i)) everybody would be worse off.
I find this story convincing and therefore believe, though it sounds facetious, that the dirtiness of, for example, Calcutta, is a reflection of the rationality of its inhabitants. This also shows how much we can gain from a little bit of irrationality. Actually there are two ways of solving this problem. One is to impose fines for dirtying the streets; the other is to inculcate in human beings suitable values. The former works by changing what is rational to the individual. The latter works by making people accept a little bit of irrationality. It is true that the latter would take much longer to implement, but it is ethically clearly more attractive and ought to be the ultimate objective.
Kind of after thoughts which makes econ analysis so exciting.