Troubles in Central Planning: New York City Cabs

by Brian McGraw on January 12, 2011 · 1 comment

in Mobility, Regulation

Via the New York Times, an article with empirical evidence that regulatory incentives encourage cabs to disappear around 5pm, just when they are needed most.

The article places blame on the fact that most cabs are leased by larger companies and typically operate 24 hours a day via employees trading off 12 hour shifts, and notes that the regulatory commission has attempted to fix the problem by raising fares during rush hour. The real problem, of course, is that New York City strictly limits the number of cabs allowed in the city and requires that they all be uniformly painted yellow.

Taxi medallions in New York are strictly limited (a medallion is required by law to operate a cab) to the extent that they sell for over $700,000. This enormous up-front cost makes it more difficult for individuals to attain cab licenses, and more likely for them to end up in the hands of large companies with more resources — making long, inflexible shifts more likely as larger companies with increased resources capture rents and encourage employees to demand longer shifts to help earn a sufficient wage. In addition, were medallions available at a cheaper price, it might be easier to for cabs to work part-time, covering only periods of high demand such as evening rush-hour.

The city’s Taxi Czar takes a surprisingly prudent stance:

The Bloomberg administration, which prides itself on data-driven policy, is still grappling with how to handle the discovery. Mr. Yassky said that, so far, he had no plans to ask for any changes to the industry’s schedule, although his team is still considering its options.

Mr. Yassky said the city “should be circumspect about substituting its judgment for the judgment of business people.” But he acknowledged that any attempt at regulation would have to take into account the forces that have kept the practice in place for years.

Though it still seems very likely that these regulatory bodies are directly or indirectly setting up the industry structure that they now view as troubling (and their likely response would be one of increased regulation, rather than de-regulation).

Image credit: lukegeorgeson’s flickr photostream.

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