We Need More Medallions
By Steve PoftakJune 2nd, 2008
This morning’s Globe brings news of a demand by newly unionized taxi drivers to raise taxi rates in the city of Boston. Its a bad idea.
Not that cab drivers don’t work hard and probably deserve higher compensation, but anyone taking a cab in this city knows that there are not enough and its already incredibly expensive.
And a demand for higher wages presupposes that there’s no elasticity of demand (in other words, that the same number of people will still take cabs, regardless of the price).
And the evidence of high costs is clear — I live inside the city limits and its costs me $40+ to get to Logan. Don’t like anecdotal evidence? Fidelity founded Boston Coach precisely because of cost and reliability issues related to Boston cabs. Boston Coach’s service to Logan would cost me $90, but they will come on time, in a pristine sedan, and get me to the airport on time.
The real problem is the artificial limit on the number of medallions in the city. This trificates the taxi value chain — the driver rents the car and medallion, paying a flat fee for each, then pockets the rest. As variable costs (gas, that is) increase, the flat fee stays the same so the driver loses money. The flat fee is driven by the cost/scarcity value of the medallions, at least one of which recently sold for $377k. (See Joe Keohane’s Boston magazine piece here)
Issue more medallions and you should get lower flat fees to drivers and more cabs. Keep the supply constant and raise fares and you’ll probably get fewer people taking cabs.
Also, Outraged Liberal takes on the topic as well.
Entry Filed under: News
4 Comments Add your own
1. ray | June 22nd, 2008 at 9:45 am
Well i try o buy a taxi medallion for invesment as you know the cost is over 380K to lease it weekly will be $ 500 a week and the owner of the medallion will have to pay insurane 7600 a year and renew fee 250 do the math and tell me how medallion owner make money and about boston coach is only the nice car you ride which cost them 20k
and get no medallion on it worth 377K i don’t see how today medallion owner can make it.
2. Steve Poftak | June 23rd, 2008 at 11:03 am
Ok, I’ve about had it with this discussion. Apparently, neither drivers nor medallion owners are making any money whatsoever in the taxi trade.
So, why are people still driving taxis and why are you are interested in buying a medallion?
3. C. August | June 27th, 2008 at 12:39 pm
Steve, have you asked yourself why the entire medallion scheme exists in the first place? You said that “The real problem is the artificial limit on the number of medallions in the city. ”
You’re right that there is an artificial limit, but it’s not on the number of medallions.
No matter how many medallions the government issues (and I’m assuming you wouldn’t advocate that it be an unlimited number) the medallions will create an artificial limit on supply.
You correctly note that the government is creating an artificial scarcity. Increasing the number of medallions by X amount won’t fundamentally change the system, however.
The only solution that would work — in fact the only solution that would be morally justified and respect individual property rights — is a full deregulation of the industry and the abolishment of the medallion scheme.
4. Steve Poftak | June 27th, 2008 at 2:45 pm
C. August makes an incredibly shortsighted….er….ah.
Actually, he or she is absolutely right. My post is a pragmatic contribution to the debate, but C. August is right on the merits.
Check out their blog post on the topic.
http://titanicdeckchairs.blogspot.com/2008/06/bostons-medallion-morass.html
Nicely played.
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