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.
I find this a very weak argument. You're essentially saying that we have to limit car usage because too many cars cause congestion.
Congestion has an explicit cost (wasted time) even if it is not priced in with some artifical time-of-use payment.
Ultimately people will get onto the road one way or another if they need to get somewhere at a set time. So by limiting cab licences, all you are doing is limiting the mix of cabs vs other cars. You can't honestly say that, at 5pm on a Friday afternoon, people are going to not catch a flight to the airport because there aren't enough cabs. They'll either order a town car (a different type of cab) or they will get a lift. Limiting the number of taxis is a very poor proxy for limiting congestion.
The issue of empty cabs driving around is spurious because it is explicitly fixed by the technology. If that's what the purpose of limited taxi licensing really was, there would be a different solution in place than limiting the overall number of cabs.
NYC might have said they're trying to limit congestion, but I think that's a very naive view of the situation where vested interests are clearly benefitting from a government-granted monopoly. Even if you rule out corruption, the status quo doesn't affect the people choosing the medallion numbers, so I doubt they would see a need for change.
The idea is not to reduce cab counts to the point where people call towncars instead; that's likely a worse outcome, because the towncar spends only ~1/3 of it's time full: the other 2/3rds are spent driving to and from the towncar's parking space.
Ideally cabs would spend near zero time driving around empty. Today this is solved by medallions, imperfectly, but tomorrow this can be solved by technology.
What can't be solved by technology is the number of cabs trolling around. You can have perfect GPS based dispatch, with your next fare always ready to get in your cab just as you're dropping off the last fare, and there would still be huge problems, because there's nothing to stop this ideal set of 100% in-use cabs from being diluted into five times as many 20% in use cabs. People will take the closest cab and drivers will drive around to make sure they're the closest cab.
You can charge a per-mile tax on empty taxis, but that just raises cab fares for citizens (or forces caps) for no good reason. Just set the optimal number of cabs by fiat.
There is no person, committee or even algorithm that can set the correct supply better than a freely trading market. This has been known for a long time.
>In some respects, this is a natural monopoly.
No, it's an artificial monopoly. What we are talking about here is exchanging rides for money. That is the market - paying someone to drive you on a point-to-point basis.
If the market were left to it's own devices, and the only regulations were around traceability, security and the usual laws against blackmail etc, then you'd have a floating market with different prices per time of day and per trip. This would actually work against congestion by pricing it in.
Instead we have a central government committee deciding supply by whatever they use, and fixing prices. The natural outcome of fixed supply and fixed prices is sub-standard service and a shortage of available product. Which is exactly what cab users everywhere experience.
I disagree: the number of cabs in circulation is a complex function of the market, but the ideal number of cabs is straightforward to calculate but won't be found by the market.
Why not? Given the choice between an optimal number of cabs (fully utilized) making a larger profit and an excessive number of cabs (underutilized) making a tinier profit, the market will always choose the latter. Markets will tend to attract competitors and thus supply until profit margins drop to near zero. In both cases prices are the same, revenue is the same, but in the latter case the pie has more slices, increasing congestion. There is less profit per taxi in the latter case, especially if prices drop with increased competition, but as long as there is at least an iota of profit, the number of cabs will not decrease to the most efficient level.
Taxing congestion itself is a good idea generally, and helps increase road efficiency, but this won't result in the optimal number of cabs, either. It will result in increased prices which will cut demand and thus supply, but given this new demand, it won't magically remove competion such that fewer cabs are servicing more passengers, relatively speaking. The number of cabs will still remain at the maximum number possible while still remaining profitable. For any given cab, the amount of time spent idling is still the same--too high.
The process that would stop 100% in-use cabs from being diluted into fives times as many 20% in-use cabs is that the 20% in-use cabs would all be losing money.
If congestion is the problem, then directly charge for that - London has for example implemented a time-based congestion charge for the city centre.
If you want to limit congestion, price congestion.
Don't limit taxis, the right to drive people, the right to drive a car ending with a particular license plate number, or the amount of fuel available (all have been tried to reduce traffic) -- just make the roads themselves cost more when there are more cars on them, and make the roads cost less when there aren't.
"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.
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.
> 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.
The market fare is also affected by the number of cabs - if the number of cabs available significantly exceeds the demand for cabs, the market fare will fall. This means that each additional cab on the road is a double-whammy against the profitability of all cabs - it reduces the market fare and it increases the average idle time.
The reason there is a tragedy of the commons is that not _all_ the costs are internal to the driver. Sure, if traffic is slow enough it becomes unprofitable for everyone, but before that point there's a situation where it's profitable to you but you're causing so much costs for other drivers it's a net bad for society.
What about other industries that need the streets? What you're saying is akin to saying "Who cares if the creek is poisoned downstream, I need to dump into it to maximise profits!"
I can't speak for all medallion programs, but NYC medallions were created to solve a surplus of taxis and associated congestion, low wages, and poor service, at least according to the NYTimes:
As far as I can tell that article implies the main goal of medallion limits was to increase prices by decreasing competition. Which is exactly what I would have expected.
These new systems exclusively use smartphones to hail cabs. Cabs don't need to circle to find fares. This is much more efficient than the medallion system
"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."
You're missing a huge piece of the equation: politics and corruption. Medallions were currency used to do favors to politicians, power-brokers, etc. It was a cheap way for someone to make some cash by renting it out. The government created the monopoly and scarcity; then those in power used it to make money. A story that's repeated all over the place.
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.