Abstract

Ride-hailing services are an essential mode of transportation for millions worldwide. The rapid growth of this service has raised concerns about its environmental impact. To address these concerns, ride-hailing companies are adding or introducing environmentally friendly vehicles (e.g., electric vehicles) to their platforms. However, it is not clear how adding such “green” vehicles will affect the environment and customers. To our knowledge, this paper is the first to analyze this question theoretically. We formulate a model where drivers decide whether to serve local customers or reposition to serve customers in a different location. There are two types of vehicles: regular (gas-fueled) and green (environmentally friendly). Among other factors, customer demand for a ride in each vehicle type depends on the prices of both ride types. In this setting, we find that, contrary to common belief, adding green vehicles to a ride-hailing platform may increase emissions under certain conditions. We identify the operational and market drivers of this adverse environmental effect. Our analysis also reveals that the environmentally optimal price margin for green rides, relative to regular rides, may be positive. Finally, we characterize the market conditions under which adding green vehicles is beneficial for all customer types, including those who are environmentally insensitive. We investigate several extensions and verify that our main insights are robust to these scenarios. Our paper highlights that ride-hailing platforms and policymakers should make prudent decisions about introducing green vehicles to reduce emissions. Adding green vehicles without careful consideration may lead to unintended consequences.

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• Keyword(s):
• operations 148
• sustainability 26

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