Issues in Fare Policy: Case of the New York Taxi Industry

Setting taxi fares is one of the most delicate and difficult tasks faced by taxi regulators. Fare setting is delicate because political forces are strong on both sides of the issue. The difficulties lie in reliably determining taxi costs and revenues and how a fare increase will affect service quality. Major issues commonly raised in connection with fare policy are considered, including the goals of fare changes, the relevance of medallion prices, and implications for service availability. It is concluded that fare increases can achieve their goal of increasing revenues to the taxi industry but that additional regulatory action is required to ensure improvements to driver and vehicle quality. Arguments that fare increases are unnecessary in the face of high medallion prices are shown to be impractical and possibly counterproductive. Finally, it is argued that fare increases expand the availability of taxi service and that availability considerations should be an integral part of fare policy.