The Unfairness of Taxi Fares


by Mario Rizzo

Some time ago I was accused by the noted economist and psychiatrist Professor Bradford DeLong of being a “psychopath” and “clinically crazy” because I suggested that people should not tip cab drivers in New York City. I do not intend to revisit that particular issue here.

This time I would like to take on the Taxi and Limousine Commission’s approval of a 17% fare increase for cab rides beginning in September. The ostensible purpose of this is to help taxi drivers make a decent living. Part of the case for this has been made by showing that the prices of all sorts of food items have increased over the past several years. (Interestingly, the price of agricultural products is not considered part of core inflation, as Fed Chair Ben Bernanke tells us. But no matter.)

The problem with this argument is that the income (wages) of taxi drivers is, or should be (more on that later), determined on a competitive market. So that if the market determines that the price of driving services should rise, the medallion owners will have to cough up more money by reducing the rental charges on the cab.

Now please look above at the increase in the value of NYC taxi medallions over the past 40 years. What an amazing ride upwards! Thus by insulating the medallion owners against the need to lower their rental rates, the Taxi and Limo Commission ensures that the ride upwards continues.

However, the Commission realizes that if they simply approved the rate increase and if the market does not warrant an increase in drivers’ compensation, the medallion owners would simply raise their rental rates. So in its Wisdom the Commission also approved a cap on the rental rates.

So where are we? Instead of the market setting the taxi fare the Commission will do it. If they set it at higher than the equilibrium rate, then potential drivers will be kept out of the industry (and others may drop out). In any event, it is the wrong way to go.

Let the medallion owners reduce their rental rates, if necessary, to restore the market compensation rate for drivers. Let the value of the medallions fall — they can go a long way down.

In the meanwhile, try not to tip so much.

9 thoughts on “The Unfairness of Taxi Fares

  1. As usual in this kind of situation, one would wonder about the influence of the medallion owners on the Taxi and Limousine Commission.

  2. Most taxi drivers don’t own their medallions but rather are paid by the owners of the medallion. You’re not hurting the medallion owner, you’re just being a dick.

  3. The taxi market should be freed up by abolishing the medallion system and the Taxi and Limousine Commission.
    The medallion owners would argue that the value of their medallion property would be wiped out, unjustly; to which I say that the value of slaves was wiped out when slavery was abolished. As Art Schlesinger Jr. would have said, the republic survived. (Unfortunately.)

  4. That’s the whole point, Joseph. They don’t own the medallions. Perhaps you misread the post.

  5. Maybe I should start expecting tips from my students — and accusing those who’d rather not of being psychopathic. My wife’s a psychologist — I’ll have to ask her what she thinks of that. Anyhow, that’s it for DeLong in my book.

  6. @Joseph: A clinically crazy, psychopathic dick? At least you didn’t waste the time to read/understand the article (which I DID find confusing at first, since I don’t live in New York nor go there often). Stuff written by psychopaths takes closer concentration, ESPECIALLY if they’re dicks, too.

  7. On the question of “cheating” this applies only to the old post which was not the subject (aside from the incidental reminder at the end)of the current post. Nevetheless, I would say since my main point in the old post was that

    service is bad, it is not cheating to express that in the withholding of a gratuity. If service is routinely bad then routine withholding is the proper response. But that is my last word on tipping until some time in the far future.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s