In an age of on-demand personal transport, regulations governing the legacy taxi industry must be scrapped if taxicabs are to survive, a group of free market economists contend in a paper to be published on Tuesday.
The economists at George Mason University’s Mercatus Center used Washington’s taxicab industry as a case study, arguing it is a textbook case of “regulatory failure.”
“To begin with, there are a lot of barriers to entry,” said Matthew Mitchell, one of the paper’s three authors, in an interview with WAMU 88.5.
It costs between $2,000 and $2,600 just to start driving a cab in the District, and the regulatory burden does not let up after a driver hits the road. The economists say a slew of regulations designed to protect consumers are now outdated and actually undermine consumer welfare, while also preventing the industry from innovating.
The researchers detail 10 areas where current regulations are hurting taxi drivers in their attempts to compete with lightly regulated ride-hailing apps, such as Uber and Lyft, which have more than 100,000 registered drivers in the D.C. region.
“Economic theory and decades of empirical evidence suggest that the sorts of price controls imposed on taxis lead to problematic shortages or surpluses. If the regulator sets prices too high, the result is wasteful nonprice competition and inefficient production. If prices are set too low, company owners won’t invest sufficiently in their businesses,” the researchers said.
Mitchell credits the D.C. Department of For-Hire Vehicles for moving toward having fewer regulations by developing an “Xclass” of service, which may eventually let city residents drive their own cars as taxis, similar to UberX.
“A lot of problems with taxi regulations is they lock in antiquated technologies and antiquated business practices. Take something like the [credit] card readers that maybe were state-of-the-art a decade ago but are not up to modern technology,” Mitchell said.
The current regulatory regime should be scrapped and the District should start over with a clean slate, Mitchell said. [MORE]