Taxi 101 FAQs – Some Basics of Taxi Regulation
Q: What is a generally accepted regulatory scheme for taxis?
A: A typical regulatory scheme contains five elements: cleanliness, mechanical fitness, driver qualifications, consumer protection eg fares and fee schedules, and a system of licensing vehicles through the use of “plates” (or similar terms such as “medallions”). The typical systems are “closed entry” (there is a finite number of “plates”) or “open or uncapped” (there are generally no restrictions on how one gets authorization to drive a taxi). A “closed” system is also known as one that is “economically regulated”.
The term “open” (as it relates to licensing) has been confused with “deregulated”. Deregulation generally means having little or no regulatory control over any of the five key elements: cleanliness, mechanical fitness, driver qualifications, consumer protection, as well as licensing.
Reregulation is a more precise term that involves removing only the capping of licenses from a taxi regulatory scheme.
Q: Why is the number of taxis limited by cities?
A: Some cities believe that the quality of taxis (cleanliness, mechanical fitness, driver qualifications, for example) are better when there are a limited number of taxis. Classic economic theory suggests that taxi market failure justifies regulation in the name of consumer protection. In the case of taxis, however, the market failures that are used to justify regulation are less of a problem than the market distortions and public policy failures created by regulation over the long term.
Q: Are drivers better or worse off in an open (or uncapped) system?
A: One of the most common myths in taxi regulation is that drivers’ incomes are higher in a closed-entry system where the number of taxis is limited. This is not true. Taxi drivers effectively bid for their jobs and compete away any excess profits or surpluses. Plate holders are able to cream off the excess. What makes a bigger difference to the welfare of drivers is whether they are contractors or employees.
Q: Why would cab companies want to limit the number of taxis they are allowed to operate in their fleet?
A: Because limiting the number of taxis increases the value of their licences. Taxi plate licences (TPL’s) become like a traded stock, with speculative value.
Q: Why aren’t taxis licenced like other city businesses?
A: Taxis are one of the few businesses that are supply-managed at the municipal level. The US created “taxi medallions” in the 1930’s to re-enfranchise businessmen who had lost everything. But this licencing scheme only works for the first generation. Medallions in New York City now go for over $300,000.
Q: What are some of the things that make taxis regulation different from other industries?
A: There is such a low capital cost required to get into the taxi business that it distorts the normal rules of supply, demand and customer service. Some studies have concluded that the taxi business is counter-intuitive, in that the “bad operators” will drive out the “good”. Many reports have concluded that there is little value to licencing one driver and one taxi as a business, yet many Canadian cities are still organized this way. Insurance rules, immigration laws, and the income tax rules can distort the taxi business so that the needs of the travelling public are not well served by the industry.
Q: How is taxi regulation typically governed (governance)?
A: There is no one way to structure oversight of the taxi industry. The goals in any governance structure are:
- to comply with enabling legislation;
- to create the environment in which sound public policy can be developed, and:
- avoid any conflicts of interest, real or perceived.
In Canada and the US, most cities view taxi governance as a licencing function, and may organize it to be part of City Clerks, their Transportation Department, Transit Authority, Consumer Affairs, or business licencing and enforcement generally. In these structures, City Councils are still responsible for decision-making, but supported by administration for operations.
Some cities depoliticize the governance of taxis by putting it under their Police Department, thereby focusing on driver safety and consumer protection.
Other cities still have a Taxi Commission structure, which creates a body of appointees to have authority over entry into the industry, rate setting, and regulations. Still other cities may include an advisory committee with varying degrees of autonomy and authority.
[next page]