3 J. L. Econ. & Org. 117 (1987)
A Reconsideration of Taxi Regulation

handle is hein.journals/jleo3 and id is 125 raw text is: A Reconsideration of Taxi Regulation

Federal Trade Commission
San Francisco State University
In this paper we offer an explanation of how the regulatory enforcement of
an average pricing rule for taxi services, which has been frequently observed
throughout the history of taxi cabs,' can reduce exchange costs and promote
efficiency. We further argue that in the modern era, the taxi medallion system
became a useful and perhaps necessary institutional arrangement for enforc-
ing average pricing rules. We do not claim that markets for taxi services cannot
exist in the absence of regulation and medallions, but only that under certain
circumstances, average pricing regulation, enforced by a medallion system,
may promote efficiency. Finally, we discuss alternative institutional arrange-
ments for enforcing average pricing.
Each taxicab ride is a relatively unique service. The cost of providing a ride,
ignoring the comfort or style of travel, will be a function of distance, duration,
We would like to thank Ronald Bond, John Hilke, Pauline Ippolito, Robert Mackay, and
Douglas Webbink for comments on earlier drafts, and Daniel Alger, Rudy Gonzalez, Edward
Mansfield, and Stephen Mehay for helpful discussions on the subject. The editors of this journal
have provided us with very helpful suggestions. The analyses and conclusions set forth are those
of the authors and do not necessarily reflect the views of the Bureau of Economics, other
Commission staff, or the FTC itself.
1. A brief and interesting history of taxicabs is given in Gilbert and Samuels, chap. 2. The
remainder of the book provides a survey of taxicabs and regulations in the United States.
Interesting episodes of taxi regulation are given in Turvey; Eckert; and Kitch et al.
Journal of Law, Economics, and Organization vol. 3, no. 1 Spring 1987
© 1987 by Yale University. All rights reserved. ISSN 8756-6222.

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