Boston Discusses Taxi Cab Deregulation

WBUR radio in Boston conducted a series of investigative reports on the high-cost of taxis in Beantown. Their conclusion? Regulation, specifically the high-cost of taxi medallions used to limit the supply of taxis, was the primary culprit.

Reporter Adam Regusea found that taxis were more expensive in Boston than most other major U.S. cities, including New York, Las Vegas, and Los Angeles. He examined other regulatory burdens as well, such as the limits on taxis picking up customers in other cities that effectively means taxis must cover the costs of a empty ride back to their home base.

The reports confirm our study published several years ago Giving a Leg Up to Bootstrap Entrepreneurship. We examined local regulatory barriers to entrepreneurship in several cities, including Boston. We also had a chapter devoted to a cross-city analysis of taxicab regulation, detailing the barriers erected by regulatory authorities to thwart entry into this business. Reason analyst Harris Kenny is also following and blogging on taxi deregulation efforts in Denver, and his posts can be found here and here. Of course, I have blogged and written opeds on the Washington, D.C. taxi corruption fiasco and on regulation’s impact in other places including Los Angeles.

An excellent example of the perverse effects of taxicab regulation was discussed briefly on WBUR’s radio show last Tuesday (February 15, 2011) based on Ragusea’s reporting (on which I appeared). One of the discussants was a cab company owner who sang praises for Boston’s regulatory authorities who required all taxis to take credit cards. He reported that his business went up 22 percent after this requirement was imposed.

Of course, this begs the question: Why didn’t he require his cabs to accept credit cards on his own? Or, more importantly, why didn’t other companies accept credit cards?

The answer, of course, is the lack of competition. The medallion system limits entry and, as a consequence, innovation and incentives to innovate. Once the medallion is purchased (in Boston for $400,000), the natural incentive is to protect its value. Because this is a strictly regulated industry, the safest route is to maintain the status quo to generate steady revenues to pay off the medallion. Anything that puts cost-recovery at risk–including experimenting with expensive credit-card machines when everyone in the industry says it’s a cash business–is discouraged.

Once again, the public is better served by a dynamic taxi industry that diversifieds to meet consumer demand. A regulatory approach that focuses on health, safety, transparancy and accountability to consumers can be found in Reason Foundation’s study on bootstrap entrepreneurship as well as in this consulting report for the Village of Port Chester, New York.