Follow the Swedes to Market-Based Taxi Deregulation

One of the most common objections I run into with respect to taxi deregulation is the concern that taxi drivers might have the audacity to charge different prices for different trips and customers. I think ultimately this fear is born from a lack of experience with riding in a taxi, but many people, including “experts,” believe that the taxi market is so dysfunctional that drivers and customers couldn’t voluntarily settle on a price based on willingness to pay. Thus, the government has to set a “fair” price. (Ironically, most taxi users think that taxi laws are protecting their interests when, in fact, they protect the interests of the established taxi companies as I discuss in a January/February 2012 article in the Freeman.)

Moreover, a number of cities in the US, usually smaller ones, don’t regulate taxi fares at all. Most big cities do, however, and that’s where most people draw on their experience.

I didn’t realize until recently that one of the best examples of taxi deregulation didn’t exist in the US at all. Rather, taxi deregulation is working quite well in the cradle of the modern weflare state: Sweden. Deregulation began in earnest in 1990, and the Swedes deregulated fares as well as entry into the market and created dynamic and competitive market that serves consumers quite well as a result. A full analysis can be found in a 2007 report from the Organization for Economic Cooperation and Development (OECD) beginning on page 174. One important rule that still exists? Taxis have to publish their fares so that users can see them before they step into the cab. As the report notes:

“Since the deregulation taxi companies are free to set their fares but are required to inform customers about the fare prior to trips. There are guidelines and agreements on how prices should be presented to customers both inside and outside the taxicab. Taxicabs must also be equipped with receipt writing meters.”

The system has been working well ever since (although new regulations were added in 1995 to beef up driver requirements such as background checks for violent crimes). Perhaps it’s time US cities followed the Swedes toward this market reform.