Why Taxi Medallions Are Bad for Neighborhoods

We’ve commented extensively on taxi regulation in cities and states on this blog, and I take aim squarely and the destructive effects of taxi madallions on neighborhoods in an oped published in the Washington Post over the weekend. Taxi medallion systems explicitly limite competition, and when competition is limited, the neighborhoods suffer. I write, in part:

“There goes the neighborhood — literally — as taxi drivers inevitably would abandon low-margin trips in outer neighborhoods such as Anacostia to concentrate on the milk runs to the airport or serve higher-income customers along K Street and Capitol Hill.

“That conclusion may seem exaggerated, but other cities that have restricted taxicab availability have had that kind of result. It’s simple economics. Drivers focus on fares that generate the highest return, and their ability to do so will increase as competition becomes more limited.

“Medallions are metal plates issued to vehicles authorized to operate as taxis. Medallions have been around for decades in some cities and were widely adopted during the 1930s as an attempt to limit competition from new cab companies.

“The big winners in a medallion system are large existing companies. Once medallion systems are put in place and the supply is restricted, as the D.C. ordinance explicitly aims to do, the price of medallions goes through the roof. In New York, medallions sell for upward of $600,000. The going price in Boston is $400,000. Even in small taxi markets such as Columbus, Ohio and Minneapolis, taxi medallions and licenses have sold for more than $25,000.”

For more on taxis and regulation, see previous posts by me (and my colleague Harris Kenny) here, here, and here. For a review of where economists stand on taxi regulation, see the article (January 2006) in EconJournal Watch by Ted Balaker and Adrian Moore.