The chief of staff of a prominent Washington, D.C. councilman was arrested on Thursday for bribery charges involving legislation that would cap the number of taxicabs in the city. (See also here.) It’s another example of how corruption is rife throughout the taxicab industry, and how regulation abets corrupt behavior.
In this case, the aide to the city councilman leading the charge to limit the number of taxicabs in the district, was indicted (not yet convicted) for taking $1,500 in bribes to ease legislation (introduced in July 2009) into law. The bill would effectively cap the number of licenses through a medallion or certification system (with an exception for hybrid vehicles), and the city currently has a moratorium on licensing new drivers.
Leaving aside the bizarre idea that a city the size of the District of Columbis is overserved by taxis, one of the striking aspects of this case is the low price of bribery. If the legislation goes into effect, medallions (licenses) could easily go for hundreds of thousands of dollars. In New York City, taxicab medallions sell for upwards of $500,000. This artificial value (or “rent” in public choice economics terms), is created soley by regulation, not market demand.
Imagine the financial gain an existing cab owner would get from a medallion system that artificially creates a value for the company in the hundreds of thousands of dollars? A couple thousand dollars to pay off a public official becomes a financial no brainer once the rate of return on this investment is calculated.
Moreover, once these madallions are in place, they become a powerful obstacle to reforms that benefit consumers and the riding public. The artifical value evolves into an entitlement for the owner, and attempts to open up the market to new entrepreneurs become nearly impossible because regulators don’t want to “erode” the “value” of the existing businesses.
As we have written elsewhere (see here, here, and here), economists who have studied this issue generally believe that taxicab regulations interfere with an efficient market for taxicabs and fail to achieve significant benefits.
The purpose of any industry is to provide high quality and cost effective services to consumers. Taxicab regulation, as this case is showing, exists to serve the interests of the few company owners at the expense of drivers (who cannot open their own independent businesses) and riders (who must depend on a cumbersome regulatory bureaucracy to defend their interests).