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Comment by arjunnarayan | Hacker News Reader

What I don't understand is if the government is going to go to the trouble of creating a giant class of rent-seeking assets, why does it then sell them out permanently? If, for some reason, the government wanted to limit the market to just X cabs, it should auction out X medallions annually, and thereby accrue the producer surplus as rent, instead of the rent accruing to the medallion owners.

Obviously, I believe that there shouldn't be a limit without an obviously proven tragedy-of-the-commons scenario (which in this case is unclear if it even exists). But if it does, it's better for the government to accrue the rent.

Ugh. I can't wait for the Google cars to gut this entire industry to pieces.

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This is just good old fashioned corruption. God knows why these cities initiated the system back in the 30s, but they probably did it at the behest of the cab owners - back then medallions were cheap and cab owners just assumed they would own their own medallion and use it to protect themselves from "excessive competition."

Now there is a group of investors that are very well connected in city politics that own the medallions, so nobody can even think about changing the system. Medallion owners will always set the rules in their favor.

Cab drivers and operators nowadays are usually poor immigrants. They have very little political power. So they suffer long hours and stress. The average citizens that have to suffer high prices usually tend to blame the immigrant drivers.

Even citizens that know about medallions are not likely to use that as a major voting issues. High cab prices are annoying, but there usually are many higher priority issues in a voters mind election time. Especially in a city like New York.

It is good that slate is shedding some light on this issue. At least makes it less likely that other cities will go down this road.

One alleged evil of "excessive competition" here is that with open competition you might get a "race to the bottom" wherein cabs that aren't well maintained or that overcharge customers make the most money. The initial apparent advantage of the medallion system is that it gives the regulators quite a lot of control over what cab operators do and it's easy to imagine that power might be used to do good. Standardizing cab appearance and fares so customers aren't confused, standardizing cab behavior in various ways, that sort of thing.

The downside of this system is that - like nearly every other regulatory system - it is subject to "regulatory capture". Over the years, the established players in any regulated industry have a huge incentive to convince the regulators to rule in ways that keep out competitors. Eventually market competition no longer serves as a check on bad behavior at all - all that matters is keeping the regulators happy. And the regulators are in the pocket of industry, so customers get screwed.

Yes, but that sort of regulation doesn't require medallions.

The initial apparent advantage of the medallion system is that it gives the regulators quite a lot of control over what cab operators do and it's easy to imagine that power might be used to do good.

We don't to limit competition for that. All we need to do is spend 50% of medallion fees on inspections (with the remainder going to general wasteful NYC spending, e.g. redistributing wealth based on random chance [1]).

In a comment on this topic a couple of years ago, I did some calculations showing that by spending only 50% of the yearly medallion fee, we could subject every taxi to an undercover inspection every single day.

http://news.ycombinator.com/item?id=1650659

[1] http://www.nyc.gov/html/hpd/html/apartment/lotteries.shtml

> redistributing wealth based on random chance

That's a little harsh - yes, a lottery is involved, but only because the supply falls far short of the demand. The lottery is conducted only among eligible people anyway (or at least, ineligible people are filtered out after the lottery), and only low-income people receive the apartments in the end.

Then what's to stop entities from outbidding everyone, buying up all the medallions every year and leasing them out?

What needs to happen is for passenger interests to be given weight. One way to do that might be to have the cities offer some short-term licenses for single shifts on a spot market, and some long-term (maybe quarterly or yearly) licenses with a fee inversely related to the driver's score over the last period (determined by average rating by his fares, and/or relative average tip amount for the route).

Applicants for long-term licenses with good ratings and relatively high tips for their routes for the previous period would get cheap licenses, those with poor scores would get more expensive licenses, and those without a track record or filed for the benefit of non-drivers would get exorbitant fees.

This would have the secondary benefit for municipalities of drivers being incentivized to declare their tips.

The market will stop somebody from doing that. There will be a price that if the bids go above, the bidder will not profit because the required shift leasing rate would not allow the driver to make a profit. If the driver cannot make ANY profit, they will realize quickly and not lease any shifts. The market obviously isnt that perfect, but still, it should protect people from bidding way too high to control the market.

If I completely misinterpreted your main point and instead you are saying that it wouldnt change the way things are currently run in practice, then you are probably right; HOWEVER [and I think this is what the parent comment was getting at], the local governments would be far, far better off, at least allowing for some good to come out of this system

Use a lottery. This is what lotteries are for. Allow only individual drivers to hold medallions, set a price or a profit sharing mechanism between city and drivers, rent medallions for five years instead of selling them, and award them according to a lottery.

A lottery would be terrible for this in my opinion, especially for individual drivers. Who would invest in buying a taxi if they could potentially lose their medallion the following year? Not to mention the rediculous position to put a driver in if he loses the lottery next year and then is forced to find a new form of income. Just imagine the implication for any other profession: tomorrow you may lose the programmer medallion lottery and be forced to learn something completely new from scratch. It would be bad for the industry too since churn would happen randomly vs organically, meaning unecessary amount of "green" new drivers who don't know the streets as well, etc.

I said "rent medallions for five years". Not one year. You can also have the medallion be for life, but not transferrable nor inheritable.

It strikes me that only allowing individual drivers to buy the medallions might help with this problem. I.e. only allow a person who had bought the thing directly from the government to use it for driving a cab. Then the drivers could take out loans from someone to purchase a medallion, but that loan would be on the same terms as anyone else.

Why do you need medallions at all? The drivers already have licenses - just make the background check part of getting a license, and just charge 100$ for a license. Let as many people be taxi drivers as want to be.

We don't worry about reducing work to a living wage in any other field - we allow free entry into carpentry, construction, business & don't require them to buy medallions before starting to work.

It's a general problem of resource allocation - just like cancer. Some group or cell identifies a resource and starts diverting or blocking it for their own benefit, and this increased power/energy is enough to protect the problem from unmotivated defenders.

Or if you wanna keep the supply artificially low somehow, and provide some sort of barrier for entry, do like London does and require prospective drivers to pass a ridiculously stringent test of their understanding of local geography (The Knowledge). From wikipedia:

"It is the world's most demanding training course for taxicab-drivers, and applicants will usually need at least twelve 'appearances' (attempts at the final test), after preparation averaging 34 months, to pass the examination"

"In all some 25,000 streets within a six mile radius of Charing Cross are covered along with the major arterial routes through the rest of London.... The Knowledge includes such details as the order of theatres on Shaftesbury Avenue, or the names and order of the side streets and traffic signals passed on a route."

Overkill in the era of GPS? Probably. But pretty cool.

Not for the customers who will be paying artificially inflated prices and not for the aspiring drivers who have to pass ridiculous three-year hazing ceremony in order to be able to earn a honest living. Of course, once they passed, they have an incentive to make the others suffer as badly as they did.

Yeah, the flipside of this is that taxis in London are ridiculously expensive and anyone except tourists, the very rich and the very desperate will just wind up hiring a Minicab, which means getting into a filthy wreck of a car with a random stranger who inevitably looks like a rapist, which is precisely what taxi licencing schemes are designed to avoid in the first place.

I don't know. You end up wishing The Knowledge was compulsory in all cities outside of London, perhaps because it acts as a basic intelligence test.

London taxis make NYC taxis look like a complete bargain because of that stupid test.

So now the taxi driver has six/seven figures of debt that can't be secured by a transferrable asset? Doesn't sound economical to me.

Actually, New York already offers owner/operator medallions at a reduced rate. They are transferrable and leasable to a certain extent.

Something extremely similar to this, with a few other conditions, is going to come into effect in Calgary in the future.

http://www.calgaryherald.com/opinion/op-ed/Nenshi+Hailing+be...

So one would have to get a $200K loan to become a taxi driver. And then if it doesn't work out for you after a year, you're toast since you can't re-sell it - no market for it, since everybody gets it directly from the government.

Now imagine you're a fresh aspiring immigrant just coming to New York. Who in his sane mind would loan you $200K with no collateral if you could just decide next year it's not for you and they couldn't even sue you - you have nothing. Who would drive the cabs then - bankers? There's not "anyone else" that could get a loan even of couple of thousands with no collateral and no way to recover it. The best you get is credit cards companies - they charge 20%+ APRs for a reason. Imagine having to pay off a $200K loan with 20% APR.

On the other hand, if you make the license cheap, the corruption potential would be overwhelming - if you have somebody distributing very limited supply of licenses costing $100 but allowing income of, say, $100K per year, an incentive for bribery and other trickery would be impossible to resist. Pretty soon the price would get close to the actual cost, only the difference will be pocketed by corrupt officials.

> what's to stop entities from outbidding everyone?

They can, but by doing so, they'll pay a lot and enrich the state rather than parasites. On one hand, auctions cost them money; OTOH, they can't charge more for the lease than what a taxi driver can earn. Those are conditions where free market regulation works: if they provide little service, they can only make little profit.

> [some] would get more cheap licenses, and [some] would get exorbitant fees.

As soon as you create a bureaucratic regulation body enforcing byzantine rules, you've created a weak point in terms of corruption resistance. Such an incomprehensible administration is exactly what lobbyists can successfully tune to fit their patrons' interests.

More to the point, the only reason why you might want to regulate the number of taxis is to make sure that every driver can earn decent wages without behaving recklessly. With this respect, the medallion system has been broken, seemingly beyond repair, by parasitic investors. Your proposal doesn't sound like a focused answer to the original problem "how to ensure that taxi drivers earn decent wages without having to behave recklessly?"

If they behave recklessly, then surely that would impact their performance score as they accumulate infractions, along with any ratings a passenger might give them, and probably the tips they receive.

Since we got these new computers and internet and all city could just auction medallions in digital form directly to cabbies daily.

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