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

• "Government creates distortions which thwart market incentives for productivity, efficiency, and lower consumer prices. In a nation dedicated to free market capitalism, governmental restraints on the freedom to enter into a business or allowing the competitive market to set the price seem fundamentally at odds with immutable notions of economic liberty. While in the late 19th and early 20th Century, market failure gave birth to economic regulation of infrastructure industries, today, we live in an era where the conventional wisdom is that government can do little good and the market can do little wrong."

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.

• "Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons [the pasture]. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

  As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.

  (1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +l.

  (2) The negative component is a function of the additional over-grazing created by one more animal. Since, however the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of l.

  Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another. . . . but that is the conclusion reached by each and every rational herdsman sharing a commons. Therein lies the tragedy. Each man is locked into a system that compels him to increase his herd without limit - in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedoms of the commons. Freedom in a commons brings ruin to all."

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:

• "Given the failure of deregulation to produce consumer pricing and service benefits, coupled with its propensity to injure carrier productivity and profitability, most communities which have experimented with deregulation have rejected it, and re-regulated, in whole or part, their taxi industry."

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

• "The fundamental question is not whether taxis should be regulated, but how they might best be regulated. .... In the final analysis, the suitability of taxicab service and pricing is a peculiarly local issue, best tailored by local governments based on their unique populations, spatial densities, road congestion, air pollution, and airport and hotel traffic. .... In this area, the state and local governments should be left alone to foster the unique local public and private transportation system that suits them best."

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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