
The Tyranny of Taxi Medallions - ajju
http://blog.priceonomics.com/post/47636506327/the-tyranny-of-the-taxi-medallions
======
pg
Structurally this practice is a lot like the preindustrial precursor of
taxation, when governments would sell monopolies on the import or production
of things in exchange for a lump sum.

When obsolete government practices persist, they tend to be pretty sinister.

~~~
seanalltogether
I've brought this up in another thread, but over in the UK, due to a lack of
property taxes, its possible to purchase a home, yet stil have to pay a yearly
ground rent to a private party. The cost to own land in nothing, so there's
little incentive to ever sell it, and instead lease it out. People may
complain about property taxes in the USA, but it prevents this very practice
from happening. It would be better for everyone if the medallion system
switched over to a yearly taxation/bidding system. You would lose all these
middleman renters.

~~~
argumentum
I don't understand .. why would you purchase a home without the land it rests
on? In a free market, perhaps there is some lower price where you would do
this, but there is also a higher price where you could purchase the land as
well.

~~~
enjo
People buy Condo's all the time. Also, in the United States, you very often
give up mineral rights. So you may own the "ground" your home is on, but you
don't own whatever comes out of it.

~~~
joezydeco
Condominium owners usually own a proportional share of the land that the
building rests upon and the common areas of the property.

~~~
rdtsc
That seems almost like a scam. Kind of like time shares.

~~~
mh-
Not really.

Some more info: <http://en.wikipedia.org/wiki/Fractional_ownership>

<http://en.wikipedia.org/wiki/Concurrent_estate>

~~~
joezydeco
Condos differ from time shares. In a condominium, you own 100% of a unit and
everything inside the boundaries of that unit is your responsibility (repairs,
damage, upgrades, etc). You also have exclusive access to that unit (nobody
else can use it, unlike a time-share).

You own a fraction of the _land_ that the building sits on, and a fraction of
the "common areas" (lobby, swimming pool, parking lot, etc). You are
responsible for contributing for the maintenance of those areas, or paying
assessment fees to a management company that will take care of those areas.

------
tptacek
Apart from all the obvious externalities of cab driving operations, the
extremely high probability of fraud, and the fact that policing cabs is
extraordinarily expensive, there's another problem a lot of these analyses
miss about why cabs are regulated the way they are.

In many large cities, the taxi system is a fundamental component of the
transport infrastructure. There are locations in most cities that are not
efficiently or safely reachable via bus. Visitors to cities also tend to need
point-to-point transit; it takes some know-how and a lot of flexibility to get
from an airport to a business meeting in a near suburb, for instance. Taxicabs
are effectively a privatized component of metro transport systems.

Cities therefore have a powerful interest in making sure that whatever else
happens, there is a strata of taxi service available to all residents of the
city at some predictable rate.

~~~
NoPiece
What you are saying is fine, but that's not why taxi's were regulated, at
least in New York. The regulations go back to the depression and were put in
place specifically to limit competition in order to keep prices high and
protect employment of existing cab drivers. The history is right on the NYC
gov page:

[http://www.nyc.gov/html/media/totweb/taxioftomorrow_history_...](http://www.nyc.gov/html/media/totweb/taxioftomorrow_history_regulationandprosperity.html)

\--

quoting from the NYC site:

"Widespread poverty prompted many New Yorkers to opt for less-expensive forms
of transportation, decreasing the demand for taxis. This put many companies
out of business and caused many cabdrivers to lose their jobs. The situation
was made worse by the tactics of “wildcat” (unlicensed) taxis who used what
some considered to be “underhanded tactics,” such as drastically lowering
fares, to get more business."

~~~
chaz
Regardless of origins, I think there's still an important role for city
governments to manage the number of cars on the street. NPR Planet Money did a
story about the effect of NYC's planned +2,000 cabs (in additional to the
existing 13,200) will have on the city: shorter wait times, but longer drive
times for everyone. If the story is correct, more deregulation with more cars
on the street without other measures (such as congestion pricing) would be bad
for the public. NYC traffic is already bad enough.

[http://www.npr.org/blogs/money/2012/07/31/157477611/does-
new...](http://www.npr.org/blogs/money/2012/07/31/157477611/does-new-york-
city-need-more-taxis)

~~~
JackFr
It's far from obvious that demand has outstripped supply. The population of
Manhattan was significantly higher in 1937 than it is now 1.9 million vs. 1.6
million. On a population basis it would seem that we would need fewer rather
than more cabs.

What drives the demand for cabs is the the price of a ride versus the
alternative. If the regulated fare is low relative to subways & buses and the
overall price level, cabs will be in high demand. If the fare is high, demand
for cabs will decline.

~~~
malandrew
What I don't get is why a city as dense as NYC supports any transportation
method that puts a few individuals above the public good. Cars in a dense
urban area epitomize the tragedy of the commons. Buses and delivery trucks are
the only vehicles that must have access to the street. Everyone else should be
walking, taking public transportation, or bicycling.

Not having to wait on a street corner for a crosswalk signal or only doing so
sparingly would save NYCs on average more time than the occasional taxi ride.
On top of that, the absence of cabs would set many minds on the problem of
moving all New Yorkers around the city as fast as possible. If you're rich and
you think that your time is valuable, then vote for spending on public
transportation innovations that benefit everyone equally.

If you eliminate cars and time truck deliveries well, you can engineer a
transportation system that runs like a well engineered clock with many
complications. Cars are responsible for most of the non-detrminism in a public
transportation system.

~~~
JackFr
Taxis are not the problem. Private cars are the problem, and the city does a
pretty good job keeping them out of Manhattan as well, with tolls on many of
the bridges (any bridge into Manhattan connected to a highway is tolled; local
street bridges are not) and a 19% parking tax.

But there are certain situations where you need a taxi and the bus or subway
won't do. Think the elderly, families with small children, etc.

~~~
malandrew
I would love to see a city mandate something the size of the Lit Motors
vehicle for the cases you mentioned. However for many of the cases you
mentioned, taxis still aren't the solution. There are plenty of families and
handicapped people that get by with public transportation. They can use things
such as scooters, wheelchairs, motorized wheelchairs and strollers. Technology
has advanced to the point where a motorized wheelchair or scooter is no longer
a rare luxury.

While I can see the argument for taxies, I;m totally in agreement about
private cars and especially parking. Parking has no business in the modern
urban dense city.

------
codex
Medallions exist for a very good reason: they prevent a tragedy of the commons
from creating gridlock and pollution in major cities by limiting the number of
cars circling around doing nothing on city streets.

Most of the time, cabs just drive around waiting for a fare. This is because
cabs are often hailed when they are seen, but even if a cab is summoned by a
phone call (or smartphone) the closet cab to the fare is chosen, and it's hard
to get close to fares without driving around, because parking the cab downtown
is expensive and slow.

So, cabs use the city's public streets as mobile parking lots, hovering close
to potential fares, snarling traffic, and emitting greenhouse gasses until
they snag one. Increase the number of medallions, and you have a corresponding
increase in the amount of traffic in a city as cabs wander around fishing. Cab
drivers don't care if they're slowing everyone else down. They just want to
earn a living.

So it's better to have fewer cabs busy 100% of the time than more cabs which
aren't always busy. Thus, medallions are scarce.

Recently NYC decided not to issue more medallions, because the increased
availability of cabs would be more then offset by increased time to get from
point A to point B due to more traffic congestion.

This is a strong argument for regulating this new breed of unlicensed cab
services. They must not be permitted to loiter around in traffic hoping to be
the car closest to the next fare. They must either have a medallion or be
parked when not actively on a call.

~~~
jstanley
"they prevent a tragedy of the commons from creating gridlock and pollution in
major cities by limiting the number of cars circling around doing nothing on
city streets."

Why would a free market not prevent this? if there are excess taxis, taxi-
driving is not profitable. If taxi-driving is profitable and there is _still_
gridlock, that is a different problem. Avoiding gridlock by creating an
artificial shortage of transport is not an appropriate solution IMO.

~~~
codex
Simple: the number of cabs at which taxi driving is no longer profitable is
far, far more than the optimal number of cabs.

The optimal number of cabs balances cab availability with traffic such that
the time taken to go from point A to point B is minimal. This takes into
account the time it takes to hail the cab (waiting around if there is none)
and the time it takes for the cab to fight though traffic to point B. An
additional constraint is that the number of cabs shouldn't prevent miserable
gridlock for other drivers.

The number of cabs required before cab driving becomes unprofitable is a
function of the number of people willing to work for meager wages, often less
than minimum wage (in a big city, this number can be considered unlimited,
especially if the job is part-time), the cost of gas, car, and insurance, and
the market fare. Assuming the amortized cost of a car is fifty cents a mile,
there is enough profit in cab driving for less privileged workers, even if the
cab is idle most of the time.

Most importantly, traffic congestion in a big city is non-linear: it only
takes a few extra cars on the road to create major gridlock.

~~~
stormbrew
> Simple: the number of cabs at which taxi driving is no longer profitable is
> far, far more than the optimal number of cabs.

Do you have any evidence of this claim? As with anything, there isn't some
magical shut-off point where everyone is selling something and then no one is
after the price increases another dollar.

Your analysis strikes me as too simplistic. It ignores opportunity costs and
the possibility that it might decrease personal car ownership outright if a
viable taxi system were to exist.

At any rate, even if it's taken as fact it doesn't justify a fixed number of
medallions revised once every few decades. A price set on them, adjusted
regularly, would achieve the same cause and be less limiting and more
responsive to growth (something cities tend to do a lot of between the
issuance of new medallions).

Creating artificial scarcity does nothing but enable some people to profit
with little risk.

------
ilamont
I drove a taxi as a summer job in college in my hometown (small city near
Boston). I thought I would share a few observations.

In our city, there were three companies that owned the medallions. An
unwritten rule: The city was divided into territories, and we weren't supposed
to pick up in the other territories unless we were flagged down. If someone
from another territory called our company, they were told to call one of the
others and arrange for the pickup.

75% of our business was call-ins or pre-arranged pickups (students,
travellers, sometimes people with revoked licenses). Another 20% was pickups
at the taxi stands outside the subways stations or hotels. There were a very
small number of people flagging us down on the street. In Boston, there are
many more street pickups. Note that this was all before the cellphone era.

We also couldn't pick up in Boston, unless someone called us in advance. Even
if we were flagged while driving through the city (for instance, coming back
from a drop-off), we had to ignore. This was by law, to prevent cabs from
Cambridge or other towns from taking business away from the Boston cabs (and
Boston cabs from taking business from Cambridge and the 'burbs, etc.). It made
airport runs a bit of a risk -- while the fare was higher, since it was almost
impossible to be able to pick someone up after dropping off someone at Logan,
we were basically losing the opportunity to take other passengers for 30
minutes (or longer, depending on the traffic).

I should also add that rates in Boston were cheaper than other nearby cities
and towns. This would make some passengers angry -- "it only cost me $X to
come from the airport. Why is it $X + $20 now?"

We got a cut of proceeds off the meter, plus tips. Part-timers had to take the
worst shifts, and the worst cars -- old LTDs and Ford Fairmonts that often had
major mechanical problems. It was a poor way to make extra money -- unless you
had a busy shift (rush hour, or rainy days) there was lots of down-time, which
meant fewer receipts.

------
onemorepassword
There is a flipside however, for those who think deregulation is the answer.

In Amsterdam, the taxi market has been completely deregulated. You do not want
to get a taxi there unless you order it from a trusted source, and even then
it's ridiculously expensive.

And you don't want to try to disrupt that market unless you have good
organized crime connections...

~~~
bhb916
That seems more like a failure with "regulating" organized crime than a call
for regulating taxi cabs.

~~~
zalew
what it means is you changed one monopoly for another.

------
brador
Taxi drivers significantly under report earnings for tax purposes. They always
claim close to minimum wage. You'll find the same in every cash business.

~~~
macspoofing
Probably, but I can guarantee you that the vast majority don't make a lot of
money.

~~~
ajays
I once asked a cab driver how much he made (in SF), and after humming and
hawing, he implied that he made close to $90K/year, mostly tax-free.

Take it for what it's worth (sample size == 1), but there are a lot of people
who would love to be driving a cab in SF. Cab drivers who rent the cabs pay
$300 for an 8-hour shift on weekends (Friday evening - Saturday morning), and
still manage to make enough money to make it worth their while.

------
adventured
"In the last half decade, two trends conspired to end the taxi medallion
regime. First, people are more comfortable with trusting strangers."

This isn't true. When I was growing up, hitch hiking was still very common.

I'd argue that people used to trust strangers to a radically higher degree
before the prohibition based crime wave (the one that makes swaths of every
city in the US more dangerous than Afghanistan) that began in the 1960s.

~~~
adg
I agree. But as the article goes on to point out, we are not more trusting of
complete strangers, but rather strangers who've been vetted by many AirBnb
reviews, background checked by Uber, etc. Technology has changed the
definition of a 'stranger'.

------
coldtea
> _The reason taxi drivers have to pay for the right to work is that they need
> access to a taxi medallion to do their job. A medallion is a permit issued
> by the government that is required to drive a cab in most cities in America.
> If you don’t use the medallion yourself, you can rent it out to other
> drivers on your own or, more commonly, through a taxi company. Taxi
> companies that rent out access to the medallions have immense economic power
> over the drivers. If you’re not willing to basically become an indentured
> servant to get medallion access, well, you’re out of luck._

I don't see how the medallion itself (a permit issued by the government) is
the problem here. The problem is that the taxi drivers are not allowed to get
it directly for themselves, but have to rent it. And another problem is that
this "indentured servant" renting is allowed to take place.

Fix that, not the requirement to have a permit to drive a cab (which is
useful, as it acts as a filter for all kinds of scum drivers if enforced
properly).

~~~
enoch_r
Taxi drivers are _allowed_ to get medallions. But since the supply is so low,
they usually cost a few hundred thousand dollars. So people rent instead.

Fixing that by outlawing medallion-rental is like trying to make housing costs
cheaper by outlawing apartments. A much better solution would be to eliminate
medallions, which could be done without removing the licensing system filter.

------
ajays
People are bringing up "market forces", etc.

The solution that I think would work in SF is as follows. Charge a flat rate
(say, $50K/year; though a Dutch Auction might be reasonable too) for leasing
out a permit to qualified drivers. You qualify drivers by running background
checks, and testing them on the knowledge of the city. Pass a law that makes
illegally running a cab a serious offence. This will automatically solve the
"tragedy of the commons" or "too many cabs" problem, because if there are too
many cabs, they won't be able to make the $50K/year needed to break even. If
2000 cabs (a number 20% larger than the current fleet size) enroll in this,
you're looking at an additional $100M/year.

To run the program, have a small enforcement wing of SFMTA (instead of the
current gigantic bureaucracy that micromanages everything). Offer up an open
API so people can build apps that track cabs, hail cabs, etc.

The medallion system is 19th century. We need a 21st century system.

------
sstrudeau
The medallion system is certainly far from optimal and a different regulatory
regime that allows for innovation while still addressing concerns around
impact on traffic (public roads=classic tragedy of the commons case) and
passenger safety would be widely welcome. It could certainly improve the
customer experience on many axes (quality, availability, timeliness, cost,
etc) though I'm skeptical it would do much to improve the lot of the average
driver. Taxi driving is a relatively low skill field, so there wouldn't be
much incentive for these new ride sharing companies to treat drivers any more
fairly than they are currently treated, since drivers will need to work for
whichever companies have the largest market share of potential fares.

------
malandrew
This article makes one awesome point for regulation that would be beneficial:
exchange of data on passengers and drivers. Even if opt-in (for privacy
reasons) this would be awesome. As a customer, I would love for my reputation
on Lyft to be usable on SideCar and vice versa. On top of that, I'd love to be
able to call a car from both companies simultaneously and whichever company
gets met a driver first wins my money.

Requesting a car needs to look more like the financial system where your
broker puts out a buy order and a broker representing the driver takes that
buy order.

------
warfangle
>After the customer leaves the car, there is no record of their behavior in
the taxi.

Really? I haven't looked hard for them in NYC Yellow Cabs, but every livery
car I've hired has had a security camera inside.

------
arikrak
By the time they get around to de-regulating the medallion system, self-
driving cars will be available, which will put taxi drivers out of business.
(Unless they block that too.)

~~~
r00fus
Self-driving taxis will put themselves out of business once they either a)
crash, killing/injuring someone, b) are regularly used for illegal activities,
or c) deliver someone into a dangerous situation.

If that doesn't happen, the existing taxi industry will surely get into the
game to make one of those happen, tout-de-suite.

------
mathattack
Taxis seem to keep their status by being a very focused interest group. In NYC
there are never enough. Why not just sell more medallions? I don't buy the
"There's too much traffic" argument. Or why not sell regional ones? Try
getting a taxi in Harlem. The city's approach has been to look the other way
on private cars. I would rather see Bloomberg allow disrupters to break the
system. What's he have to lose? He can't get elected anyway...

~~~
untog
_In NYC there are never enough._

Depends very much on where you are in the city. Aside from shift changeover
periods, I'd say that there are plenty of cabs in Manhattan. In the outer
boroughs, less so- Bloomberg proposed a plan to allow 'green cabs' that could
pick up passengers in the outer boroughs only. It was swiftly beaten in the
courts by the taxi industry.

------
rdl
I wish all the cab-alternative companies using unlicensed drivers would get
together and form some kind of industry association. Standardize a background
check, safety check on the vehicle, incident reporting, etc., through this
independent non-profit. Essentially they could neutralize the moral argument
for licensing ("safety! think of the children") at minimal cost, then get back
to innovating.

------
sixQuarks
Does anyone here actually use Priceonomics to look up prices on things? I find
it almost completely useless, is it just me?

------
damian2000
Great article. I'm interested as to what the effects would be on the taxi
industry from these ride sharing apps combined with self driving cars. I think
it would likely result in a further more efficient transport system - less
people having to own cars, a decreased need for car parking.

------
hayksaakian
annoyingly this link goes to the home page, not the actual article --
otherwise a good read.

~~~
ajju
Fixed. Sorry about that.

------
smutticus
In 20 years all taxi drivers will be unemployed due to self-driving cars. So
who cares?

Robots don't need health insurance and never strike.

------
VLM
An excellent current and historical comparison can be made to the ambulance
medallion system. Oh wait, there isn't one...

------
elchief
Odd, no mention of driverless cars, which are sure to wipe out the taxi
industry entirely.

~~~
evv
The last sentence of the article:

> Ride-sharing apps should be allowed to take over the market - until they too
> are disrupted by self-driving cars. And so it goes.

There are a large number of technical and political hurdles before driverless
taxis will be possible. We will need autonomous vehicles on the road for many
years for legislation to adapt and for people to become comfortable with the
driverless concept from a safety and liability standpoint. Still, I'm with you
that it is inevitable, and very exciting.

------
minikomi
I'm cashing in all my bitcoins and investing in NY taxi medallions

