**MONGOLIA'S INFORMAL SECTOR** -

**Appendix B: Methodologies and Descriptive Statistics**

**37**

positive value. This suggests that the adjusted mode provides a clear upper bound for the percentage of vehicles that are never used as taxicabs. The mode, over the relevant range, comprises 14% of the adjusted population. Adjusting for the addition of the "zero" category, the predicted upper bound for the percentage of vehicles in Ulaanbaatar that are never used as taxicabs is 12%.89

# Value Added from Ulaanbaatar's Taxicabs

110. The Survey of Taxicabs sought to provide estimates of the average value added (earnings after subtracting the costs of fuel, garage, and repairs) when a vehicle is driven for a fixed period of time. Given that a large proportion of vehicles are used only infrequently as taxicabs, many drivers had difficulty estimating how much they would earn during an average eight-hour day, and instead provided answers for their typical day, regardless how many hours is in their typical day. We can therefore accept the sample average Tg 8,810 as a clear lower bound for the average value added for an average vehicle over an eight-hour day. Recognizing that full-time taxicabs are in a much better position to know the value added of driving continuously for an eight-hour day, it is believed that a better estimate of the average value added for an eight-hour day is Tg 13,100.

111. Having estimated the distribution of the frequency with which vehicles in Ulaanbaatar are used as taxicabs, and having estimated the value added by a typical taxicab on a typical day, we can estimate the total value added of taxicabs in Ulaanbaatar by finding the product of the number of automobiles in Ulaanbaatar, the percentage that are ever used as taxicabs, average hourly value added, and adjusted average number of hours used as a taxicab in a week. Multiplying this product by 52 weeks per year, yields a conservative estimate of 21.8 billion togrogs value added per year at current (3/97) prices. An even more conservative lower bound could be obtained by using actual sample average value added, downwardly biased by part-timers, and an estimate that 20% of vehicles are never used as taxicabs, yielding a more conservative estimate of value added equal to 13.6 billion togrogs per year at current prices.

# Average **Income of** Taxicab Drivers

112. Estimates of income of taxicab drivers differ from the estimates of value added in three ways. Each is straightforward and will be described briefly.

113. First, since the estimates will be used mainly to provide an income comparison to other types of occupations, the estimates were generated with sub-samples of drivers who could be described as full-time taxi drivers. The income estimates were calculated for three subsets of drivers, those who drive less than 25 hours per week, those who drive 25 to 45 hours per week, and those who drive more than 45 hours per week. The latter group is the one best described as full-time taxi drivers.

114. Second, an adjustment was made to each driver's estimate of profitability in order to account for the fact that they are receiving a combined return on both their labor and their capital. For comparison to other types of occupations, it is necessary to impute foregone interest. The Survey of Taxicabs provides the data necessary for this computation. Drivers were asked to estimate the current market value of their vehicle, and the percentage for which the vehicle is used for personal use. For each vehicle, the imputed foregone interest was calculated as (percentage used as a taxi) x (value of the vehicle) x (monthly interest rate). Automobiles in Mongolia serve as fairly good stores of value, and tend to appreciate roughly in line with inflation. The interest rate used in the above computation should represent the real difference between (i) the interest that would be obtained if the auto were sold and the proceeds put in another use, and (ii) the rate of appreciation of the vehicle which is closely tied to the dollar exchange rate. A conservative estimate of the opportunity cost - conservative in the sense that the estimate errs on - the high side can therefore be approximated by the deposit rate paid by the Trade & Development Bank on foreign currency time deposits, deposits which currently earn about 0.6% per month. Allowing an arbitrary 0.4% for risk - thus double counting some of the cost of risk since we are already subtracting the cost of garaging - yields an estimated opportunity cost of 1% of the value of the vehicle per month.