The Boston Globe (March 25, 2011) has come out in favor of deregulating taxicabs in Boston. Boston, like many large cities, uses “medallions” (permits to drive taxis) to limit the number of cabs that circulate in a city. In almost every city that has adopted the medallion system, a shortage of taxis exists, driving black market prices to hundreds of thousands of dollars. The economic effects are pernicious, locking out competitors and needlessly driving up prices. For more on Boston’s debate, see my blog post here.
As the Globe editorial observes:
“The city [Boston] could start by reforming its anachronistic licensing system, which caps the number of cabs at 1,825. The cap made sense when it was put in place during the Great Depression, because it protected cab operators threatened by waves of out-of-work men flooding the streets with cheap rides. But back in the 1930s, most taxi drivers owned their own licenses — known as “medallions.” Today, a great many medallions are owned by investors who lease them to drivers at high rates. It’s these investors, many of whom do not even live in the area, who reap the benefits of the regulatory system.”
Many regulators and taxi company owners (who benefit directly from inflated prices) bizarrely argue that deregulation would be an infringement on their propert rights–as if the monopoly rents created by bad public policy are a legal entitlement. Fortunately, the Globe did a little research and found that these artificially high prices are not entitlements. The editorial continues:
“Mark Cohen, Boston’s chief taxi regulator, has acknowledged that this regulation system [medallion system] needs to change. But he has long maintained that the city’s hands are tied. By some accounts, it would be illegal for the government to intentionally devalue licenses that are already on the market. But according to Lee McGrath, an attorney who successfully defended Minneapolis’s 2007 effort to deregulate its taxicab industry, federal law would allow Boston to increase the number of medallions, even if new licenses end up driving down the value of existing ones. The city should reinvestigate its legal options, and Cohen should consider a plan that would increase the number of medallions by at least 2.5 percent every six months over the next five years, a schedule that would allow the market to adjust gradually.”
For more on taxi deregulation, read an excellent survey by Adrian Moore and Ted Balaker on whether economists “reach a conclusion” on taxicab regulation in the professional watchdog journ EconJournal Watch (January 2006). Also, Reason Foundation’s study on inner-city entrepreneurship, “Giving a Leg Up to Boostrap Entrepreneurship,” surveys barriers to entrepreneurship in several cities, with a section devoted to taxicabs. My colleague Harris Kenny has been riffing on this topic in Denver, too.