Economics of Taxi Medalions (Re: taxi! taxi!

Wojtek Sokolowski sokol at jhu.edu
Mon May 18 08:05:37 PDT 1998


At 11:56 AM 5/15/98 -0700, Jim Devine wrote:
>If it is right, abolishing the medaillions (driving the price to zero)
>would impose a major capital loss on the cab companies. They would then try
>to get the cabbies to pay for this capital loss by lowering the fraction of
>the fare (the wage) that goes to the drivers. The ability of drivers to
>drive cabs (as opposed to jitneys) without going through a medallion-owing
>cab company would also drive down the wage. But it would also drive down
>the fares, so that the cab companies would lose.

Not necessarily, if the main form of 'entering the transaction' is hailing a taxi as opposed to calling one. Here is why. When you call a taxi dispatcher and do not like their prices, you may simply hang up and keep calling other companies until you hear what you like. That is, the transaction cost of 'investigating the market' is only several phone calls worth perhaps five minutes of your time.

When you hail a taxi and you do not like the price the driver is quoting you, your choice is to keep hailing until you hear the offer you like, or say 'fuck it' and take the first available cab, regardless of the price. Unless you are detrmined to wait for the 'right-priced' taxi to become available which may take an hour or more -- a rather high transaction cost that may outweigh any savings you may get from a lower fare.

So my guess is that the fares would remain largely unchanged, or even go up to cover for the capital losses you mentioned earlier. An the 'market' (i.e. us) will have to bear it or take the subway.

Regards,

Wojtek Sokolowski



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