THE REVOLVING DOOR

A Review of

TAXI INDUSTRY REGULATION, DEREGULATION & REREGULATION:
THE PARADOX OF MARKET FAILURE

A Research Paper by Paul Stephen Dempsey

The Summer 1996 issue of the Transportation Law Journal [Vol 24, No.1], published by the College of Law, Denver University, contains a well researched article by Paul Dempsey, Professor of Law, and Director of the Transportation Law Program, which chronicles the paradoxical metamorphosis of regulation, deregulation and reregulation of the taxi industry. Conventional free market economic theory holds that

Unfortunately, the taxicab industry, believed to be a $6.5 billion industry employing nearly 300,000 people, of whom 225,000 are drivers, and has been estimated that it transports more passengers than all U.S. mass transportation systems combined, simply does not behave the way conventional economic theory would have us believe. Professor Dempsey's quote from a powerful essay by Garrett Hardin, "The Tragedy of the Commons", provides a fine analogy of this situation.

The revolving door of taxi regulation, deregulation and reregulation is the basis for Professor Dempsey's case study of the collision of economic theory with empirical reality. It began with Charles I in London, England, in 1635 when he ordered that London hackneys be licensed so as "to restrain the multitude and promiscuous use of coaches." Nineteen years later, the British Parliament adopted a regulatory regime which limited the number of hackneys.

He traces the historical evolution of regulatory intervention leading up to contemporary examples of regulations in place in eight major U.S. cities - New York, Los Angeles, Houston, Chicago, St. Louis, Boston, Minneapolis, and Denver. He goes on to observe that "...much of the political debate over whether taxicabs (and, indeed, any other mode of transportation) should be regulated or deregulated has become highly ideological and polarized." Politically motivated pressures have tended to promote deregulation based upon traditional economic theory, without regard to reality.

Before 1983, some twenty-one cities deregulated taxicabs in whole or part. The experiences of these cities reveal that taxicab deregulation resulted in a significant increase in new entry; a decline in operational efficiency and productivity; an increase in highway congestion, energy consumption and environmental pollution; an increase in rates; a decline in driver income; a deterioration in service; and little or no improvement in administrative costs. Numerous examples are cited. On this historical evidence, a conclusion is reached:

Professor Dempsey quite properly observes that "...taxicabs are an essential part of the urban transportation infrastructure...", and concludes by observing:

Professor Dempsey has successfully focused solid attention on some critical issues and given us a document that is a "must read" by all regulatory personnel worldwide, in particular the political forces to which they respond, and all within the worldwide taxi industry.

Copies of the document may be acquired from:

Transportation Law Journal
University of Denver College of Law
1900 Olive Street
Denver, CO
USA 80220

Annual subscription fee is $15.00 annually; highly recommended.

Reasonable probability the document may also be found in the law library of your local university.


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