D.C. Taxi Corruption Scandal Continues to Unfold

Twenty-nine men were in a District of Columbis court on Monday to plead “not guilty” to charges of unlawfully influencing the licensing and regulatory process for taxis in the District of Columbia. Thirty nine people, including the chief of staff of a leading proponent of stricter regulation of taxis on city council, have been indicted. (My previous blog on this unfolding scandal can be found here.) According to the Washington Post:

Authorities have said the investigation began two years ago when Leon J. Swain Jr., chairman of the D.C. Taxi Commission, told authorities about a bribery attempt.

Swain began cooperating with federal agents. He collected more than $200,000 in bribes in 2007 and last year from three men hoping to buy licenses to operate multi-vehicle cab companies, prosecutors said.

Authorities said the men were hoping to buy as many licenses as possible in anticipation of a moratorium on the issuance of such permits. They thought they would profit from having the licenses when no one else could get them, authorities said….

Last month, authorities said, Swain collected more than $100,000 from…and 36 men hoping to obtain licenses to operate individual cabs.

Some of the more recent bribes were targeted greasing the palms of those who would promote legislation allowing additional licensing of cabs using hybrid technologies. The city currently has prohibited licensing additional multi-car cab companies and is not licensing new cab drivers.

While all the indicted drivers were Ethiopian immigrants or Ethiopian Americans, all were legal residents.

Clearly, clamping down on issuing new permits raises the stakes for those currently in the taxi market. Given the low-income and revenue potential for individual cabs, the only way to generate larger revenues and personal equity in the business is to expand the size of a cab company. As the District begins to do what other cities have done–restrict the supply of taxis–a rise in corruption should be expected.

Indeed, from a public choice economics perspective, corruption is a rational outcome of attempts to regulate the supply side of any market.