Taxi Regulation Leads to Corruption

I weigh in on the intended and untended impacts of restricting the supply of taxi in cities in a commentary for Sunday’s Washington Post. When cities limit the supply of taxis, they create powerful incentives for cab companies to influence and steer the regulatory process in their favor. Taxi users, drives, and small cab companies lose out.

Overnight, supply restrictions on taxi companies and cars transform small companies into multimillion-dollar enterprises through regulation-induced paper wealth. In the District of Columbia, dozens of cab companies and drivers have been indicted on taxi bribery charges. The indictments allege that $300,000 was spent over the last two years to influence the process. But this is a small investment given the potential gains.

As I write in the Washington Post commentary:

But it’s not just overt bribery that undermines the taxi market.

In city after city, the regulatory system has quickly become captured by the strongest players involved: taxicab company owners, who often act as a bloc and work fiercely to protect their interests. Less well-organized and vocal players, notably drivers, single-car operators and taxi users, become marginalized.

Taxi users and outlying neighborhoods inevitably lose in this scenario, too. As the supply of taxis and new competitors is limited, drivers and companies abandon low-margin, low-dollar fares in “thin” markets such as outlying neighborhoods or fares that arise from meeting the day-to-day needs of residents. Instead, they focus on high-margin, high-dollar fares in downtown areas such as K Street or Capitol Hill, near major event locations such as the convention center or the Kennedy Center, or at the airports.

Other cities should take note.