The New York Times reports that the most recent price for a taxi in New York medallion is $1,000,000. Wikipedia reports that there are 13,237 licensed cabs in New York. (A “medallion” is the physical form of a taxicab license.) This means that the present value of the rents created by limiting taxicabs is $13,237,000,000 — thirteen billion dollars. This is just the rents; the total lost consumer surplus is much greater because the lack of taxicabs creates substantial deadweight losses. For example, I am confident that many people have cars in New York only because they cannot count on getting a cab. Cabs change shifts during rush hour because they can earn less at this time and so that is when they go out of Manhattan to change drivers, just when demand is greatest. (This is also caused by the relatively too low price for waiting compared with the price for driving.) There is a proposal which will make it easier for limousines to pick up passengers. Of course, the taxi owners are opposed to this plan, but it would clearly be an efficient change.
New York Taxis
13 responses to New York Taxis
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October 29, 2011
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And let me also point out this, which was not really explicitly made in my previous reply: Although no Chicago economist will ever articulate the point in quite these terms, the implication of Coase’s analysis undeniably is that it is somewhat foolish to use property rights to approximate efficiency standards because the importance of property rights in our economy is necessarily a result of the economy’s *inefficiency.* Therefore, the more efficient the economy becomes, the less important property rights will be. Consequently, one could presumably question the logic of using property rights to re-structure the eocnomy in efficiency terms. Sure, you could say that de-regulation benefits consumers at the expense of producers, and there is some truth to that, I suppose, but the fundamental point is this: the importance property rights have in our economy is just an indication that we live in a terribly inefficient world.
University of Missouri, School of Law
Let us not miss the “Chicago-ean” point here, which was first introduced by Ronald Coase — if property rights functioned perfectly (i.e. costlessly), then property rights would necessarily be superfluous (i.e. unnecessary). In other words, no matter how you initially assigned rights, in a perfectly costless economy, the property rights would just immediately be re-allocated to its most efficient arrangement. Therefore, a world that operates according to the placement of property rights necessarily implies that these rights will carry with them certain costs and rents. A blog like this — which is explicitly Chicago-ean in its approach, should see this point, no?
Therefore, as I see it, one should advocate the distribution of rights in accordance with his own self-interest. So, because my profession is the Law, I don’t care either way whether licenses are retained or revoked in the taxicab market; or, for that matter, whether the AMA prohibits doctors from practicing without obtaining the necessary medical qualifications. But I do care a great deal that the legal profession retain its requirement that in order to practice one must shell out $150,000 for law school and then pass the bar exam. If we eliminated the J.D. and Bar Exam requirements, then the value of a practicing attorney would drop considerably, and that affects my interests a great deal!
The Coasean point is that the existing licenses will move to their highest valued uses. There is a well functioning market for sale and rental of taxi medallions, so that is true. In a zero transactions cost world, consumers would (costlessly) bribe medallion owners to allow more taxicabs. But we do not live in that world, and the Coase point does not say that artificial creation of scarcity is harmless. So there are deadweight costs to artificial scarcity of medallions (and of lawyers.)
The point about the bar exam and the cost of law school resulting in fewer lawyers than we would have in a free market must be wrong, or at best incomplete. The production of lawyers does not occur in anything like a free market. It is heavily subsidized (perhaps not as compared to other professions but certainly as to other forms of investment) and, therefore, without more data, we do not know whether we are producing too few or too many lawyers. Since I suspect it is the latter, one could (not that that would be my first-choice option) make a sort of Pigovian-tax argument for the bar exam and high tuitions.
Dr. Rubin,
First of all, Coase would say that, in a well-functioning economy, it is inappropriate to take the existence of taxicab licenses for granted. So to suggest that the licenses themselves would move to their highest value uses is incorrect *if* an argument can be made that the non-existence of licenses would be more efficient than their existence. Incidentally, that is why I think these “specific market” analyses by econ types is really beside the point — the analysis should always be in terms of the “economy” generally, and, to my knowledge, the only person to really think in these terms (besides Coase himself) has been Harold Demsetz. So in a zero-transaction cost world, it is quite possible that there would simply be no market for taxicab licenses to begin with! But, as you correctly point out, this is not the real world, so all this theoretical specualtion is really beside the point.
My only point was this: Economists quite rightly analyze economic problems in terms of *efficiency*. But the point must always be remembered that property rights determine outcomes and assign liabilities and confer duties, etc. etc. precisely because the economy is *not* perfectly efficient. If it was, then property rights would be unimportant. (Remember that point!) So because property rights *are* important, then, I would argue, we have to look at them not only in terms of their efficiency-creating possibities, but also in terms of the sort of expectations, interests, and rents that they create. In my particular context — THE LAW — I was just pointing out that it makes sense to me to abandon efficiency concerns in favor of the particular rents that are created by virtue of certain practicing requirements (J.D. and bar exam passage). Sure, it would be *efficient* to scale back these requirements, because presumably the cost of legal services would decline, but that would damage the interests I have in charging supracompetitive prices in the legal market. So, while I may be an economist, I am also a rationally self-interest human being at the same time, get it??
A simple solution would be to give each medallion owner one or more new, transferable medallions. If that doesn’t crash the market, do it again. WRR, until it does.
For once, Paul and I agree. I just want to know how you propose to compensate these job-creating small business owners for this governmental taking of their property.
Do you really need to compensate property owners for the loss of rents that government action created? Since they are rents, there won’t be any allocational impact, and arguably implicit in any government largesse is the understanding that it may be withdrawn, a risk certainly discounted in determining the price of the medallions. Therefore, this would probably not be a “taking” at all. Now, if your question is how to bell the political cat, well, (a) economists have no expertise in that and (b) legal groups (IJ for instance) do seem to be making some headway in legal attacks on cartelizing licensing ordinances.
Henry – Aren’t all all property rights given and enforced by government action? Patents? The Mickey Mouse copyright protection?
Steve, certainly not all private property rights protected by the government create rents, and those that you mention, patents and copyrights, clearly have distinctive justifications not available to NY taxi medallion owners.
It would only be a taking if the government dispossessed the current medallion holders. It is easy to see that removing price or quantity fixing regulations never does such a thing. The equivalent would be if the city of New London built houses adjacent to Ms. Kelo’s (that didn’t interfere with her use and enjoyment of the property) that lowered its market value purely by increasing the supply of housing in New London. Government housing adjacent to non-government housing is not a taking.
The answer is “yes” as a practical matter, regardless of the moral/philosophical answer. If NYC simply tried to eliminate medallions or auction off another 13,000 there would be a revolt by taxicab drivers. Why did it take 20 years more than it should have to roll out HDTV in the US? Because of entrenched interests of broadcast television stations, which held out for a swap of old licenses for free new licenses.
As the poster below proposes, issuing multiple medallions to each current medallion owner will get more in circulation but provide some (although presumably not complete) compensation for the loss in value.