NCPA - National Center for Policy Analysis

Retiring N.Y.C. Taxi Medallions

July 26, 2002

The New York City taxi industry is a government-protected monopoly that hurts consumers. However, the Manhattan Institute has a plan to let market competition back into the taxi business.

Currently, there are a fixed number of taxi "medallions"- licenses that allow a car to be used as a cab. The medallions were intended to be owned by the drivers. However, over the years, the vast majority of the roughly 16,000 medallions have fallen into the hands of only a few individuals, who hire drivers and pay them a low hourly wage.

According to the Manhattan Institute, this government oligopoly benefits medallion owners at the expense of both drivers and riders -- of the $1.3 billion in cab revenues per year, medallion owners receive $750 million. To correct this, the Institute offers the following reforms:

  • Instead of fixing the number of medallions and allowing them to be bought and sold - a single medallion costs upward of $200,000 - the city should directly issue licenses to drivers that cannot be sold and must be renewed each year.
  • Cab fares should be set by the market, not politicians who typically receive large campaign donations from medallion owners.

In order to implement this new system, the government needs to buy back the medallions, costing as much as $1 billion. To fund this, the city should charge the drivers a licensing fee of approximately $5,000 to $10,000. While this price seems steep, it is far less than the $30,000 a year that medallion owners currently charge drivers. Moreover, as medallion owners take over 55 percent of cab revenues per year, getting rid of medallions would significantly reduce the total cost of the taxi system.

Source: Steve Malanga, "How to Fix Gotham's Taxi Mess," City Journal, Spring 2002, Manhattan Institute.

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