Okay, what the heck is with this business of secondary markets for licenses in the US? You can sell a liquor license? You can sell a taxi license (aka medallion)? Why? How does treating licenses as property make any legal sense, or serve any public good?
In the UK, if you want to sell booze from your shop, you write to the council and apply for a license. They check you and your shop out, and if you seem okay, they grant it. If you want to drive a taxi around your town, you write to the council and apply for a license. They check you and your car out, and if you seem okay, they grant it. This seems really simple and, frankly, natural. It's how all sorts of licenses work in the private sector too - think about copyright licenses, tenancies, etc. How on earth do you get from there to licenses being a kind of property?
You make a license trade-able when you care about limiting the supply, but you don't care who gets it. The purpose of a taxi medallion is to limit the total number of taxis, and the purpose of a liquor license is to limit the number of establishments that sell liquor.[1] But the government doesn't care who has the license. Making it trade-able ensures that the license goes to the person or organization that values it most highly (Coase Theorem: http://en.wikipedia.org/wiki/Coase_theorem).
[1] These purposes aren't, on their face, unreasonable. Taxis generate undesirable congestion, and establishments that serve liquor tend to create undesirable drunk people. If you don't believe me, take a walk through Wrigleyville in Chicago on a Friday night, where you can see an endless parade of taxis picking up an endless parade of drunk students.
Jane Jacobs rolls in her grave when you say stuff like that. The overwhelming majority of transportation engineers will tell you that taxis alleviate congestion by raising asset utilization. And they also reduce the need for vast parking facilities and block-circling in search of parking (which turns out to be a large fraction of traffic in some areas). It's a triple-win.
You're assuming that private cars are the current dominant form of transport. That's not always the case.
Transport planners i've come across would probably start wittering about modal shift. If introducing more taxis into a city leads to a modal shift from taxis to cars, it's a good thing. But if it leads to a modal shift from buses to taxis, it's a bad thing.
A Machiavellian transport engineer might even consider restricting taxis so as to maximise the available modal shift to buses (or rail etc), to make projects to introduce those easier to sell.
> These purposes aren't, on their face, unreasonable. Taxis generate undesirable congestion, and establishments that serve liquor tend to create undesirable drunk people. If you don't believe me, take a walk through Wrigleyville in Chicago on a Friday night, where you can see an endless parade of taxis picking up an endless parade of drunk students.
I agree that sometimes this setup (licenses to restrict supply) make sense, but taxis are not a good example of where this provides a net benefit.
I'd rather have a bunch of taxis than a bunch of drunk college students driving. Furthermore, from a city planning perspective the most efficient use of both road space and real estate (parking) is to have cheap, on-demand taxis instead of personal car ownership. If public transportation is fairly extensive and always available (as it is in NYC), it makes sense to eschew personal ownership of cars and use taxis for the rare case when public transportation isn't enough.
Overall, this reduces congestion, and is one of the reason that taxis are oftentimes taxed less (or pay less in tolls) than personal, non-commercial vehicles.
In fact, I posit that a significant reason that services like Hailo and Uber exist in NYC specifically is that the supply of on-demand taxis is heavily restricted[0]. If the supply were left up to the free market[1], Uber and Hailo would be able to provide some added value (the convenience of the mobile app and the "premium" feel), but not the level that they are now.
[0] Since the 1970s, the number of medallions available has not increased commensurately with the increase in population
[1] but with the same laws regarding nondiscrimination of service with respect to destination, credit cards, etc.
You're not wrong in what you say regarding the necessity of public transportation and the benefit of taxis instead of personal vehicle ownership, but the free market will have no incentives to reduce congestion until such point as people would rather walk. Panama City has less incentives to clog the roads in that taxis are universally unmetered; where taxis are paid per-minute, congestion is profitable.
Despite the lack of metering and a recently-introduced subway, Panama City has terrible congestion. There's always a taxi when you want it, but a lack of regulation means that it will almost certainly be in a barely-roadworthy condition, and if you are traveling at peak hours you may as well walk. I'm told it used to be worse, that taxis would not even take you if your destination were more than a short distance away; I've only encountered this a few times. Also, while many drivers are honest, any sign that you are not a local is liable to result in your being asked to pay several times the going rate. This is the free market at work.
If you are going to invoke market forces, you need to make sure there are sufficient incentives to not wind up with a worse problem than not having a taxi when you want it. What springs to mind would be taxing taxis in proportion to your congestion problems. I am not sure that would be an improvement.
i think the quality of the taxis and the medallion system are two different issues solved by different means. There doesnt seem to be any suggestion here that the congestion of panama would go down if taxis were replaced with vehicle ownership.
None of those points have anything to do with the number of taxis and everything to do with regulation of the taxis that exist; perhaps that's a limitation of their ability to regulate and enforce, but that should be the bottleneck preventing taxis from staying on the road. That is to say, the answer to 'we can't enforce all these taxis' isn't 'let's enforce no taxis'.
take a walk through Wrigleyville in Chicago on a Friday night, where you can see an endless parade of taxis picking up an endless parade of drunk students.
But isn't this supply meeting demand? If there were too many taxis, wouldn't the supply eventually cull itself when nobody can make enough money?
The subtext behind an invocation of Wrigleyville is that drunk bar clientele from outside the area makes it difficult to live in. Wrigleyville is a running joke among people who live on the north side of Chicago.
And now I suddenly feel the need to stand up on behalf of people four years younger than myself and say: drunk college douchebags are people, too. They have equal rights and an equal stake in governance, too.
Sure, but the issue in this case isn't about rights or governance, it's about local issues caused by non-local individuals. Vancouver has a similar issue, where the drinking/clubbing/partying district, Granville Street in the heart of Vancouver's downtown, is a huge destination for partygoers from all over the region; not just Vancouver, but outlying cities and suburbs as well; a city of around 600k has to take on the responsibility of hosting the drunks, clubgoers, partiers, concertgoers, etc. of a region of 2.8m people, and many of those party people live and work outside of the city, pay taxes outside of the city, pay rent outside of the city, and only come downtown to party.
That results in an increased cost of policing the area (since all drinking and clubbing establishments are forced together), the increased cost of cleaning (everything from garbage and smashed bottles to a surprising amount of vomit), increased regulation, transportation congestion, medical care, etc.
It also results in a neighbourhood which goes from a mostly pedestrian mall-esque area full of shops and boutiques to a shitshow where you might get punched for no reason (as happened to a friend's boyfriend as they were walking home from the movie theatre; shattered his jaw, which had to be wired shut).
The problem isn't necessarily 'outsiders are bad', but rather that these people come downtown, drink, have a good time (or a bad time), but feel no responsibility for the area. They don't have to walk through it after a bad night to get to work and see the catastrophe they caused, so they may never realize the social and economic impact of bad behaviour. If it were their mailbox kicked open or their doorstep puked on or their neighbour hospitalized, it might encourage more restraint, or at least more consideration, but unfortunately that's not usually the case.
I think that's generally the problem with the 'drinking district' in a lot of cities; people from everywhere but there go there to party and have fun, and if they don't, they cause problems and then head on home, lost in the crowd, and probably don't even remember it the next day.
Nightlife isn't concentrated into small eras because of licensing. If you want bars and nightclubs spread out through an area, you are arguing for liquor licensing.
In neither the Vancouver example nor the Wrigleyville example is the problem "college students".
I somehow doubt that those people would stop going out and getting drunk during the evening if there were fewer/no taxis. They'd just be driving themselves.
Sure, maybe you could push it out of one neighborhood and into another, and the residents of Wrigleyville might be all for that, but is that actually much of a net gain for society in general?
I'd rather have drunks clogging sidewalks and taxis clogging roads, than drunks clogging roads.
I see... I guess one possible solution would be to make liquor licenses non-transferable, and then only issue them to businesses that are not located close to some threshold of other license holders.
Calibrating those thresholds to not generate more traffic (as people barhop with cabs instead of walking between bars) and to not kill the nightlife completely would probably proof challenging though.
If you only issue licenses to businesses that aren't close to other businesses, you've created an artificial scarcity. That's fine, but the economically optimal solution to scarce licensing is auctioning or, if that doesn't work, secondary markets.
The same happens to all areas with bars were night life is concentrated, whether there's taxi present or not.
There are completely similar places were ("drunk bar clientele from outside the area makes it difficult to live in") without any taxis (e.g in Amsterdam or Barcelona). Or places where the drunks prefer to drive (don't ask). In a dense city people can just walk there from a different area, or use the metro.
Arguably the state should care about who gets the licenses, but even if it didn't, the state can easily ensure that licenses go to the people or organizations that value them most by auctioning them on an annual basis (and offering incumbent licence-holders first option to renew the licence at the market determined lease rates) whilst collecting the licenses' appreciation in value
But as soon as you start caring about who gets the licenses, you have to create a set of criteria, and people will have a hard time choosing them.
The old politician from the old part of town will argue for historical precedent; the younger, hipper politician might argue that new applicants should be given higher priorities; etc. As soon as you start trying to decide, you start deadlocking and someone gets screwed.
As it is now, all you need is money, rather than money and a friend on the council.
It doesn't serve a public good. It raises prices by limiting supply. It is almost pure protectionism, to eliminate competition.
Impose an artificial barrier to entry, and everyone already past the barrier can work a little less, and reap higher profits.
Ensuring safety and quality of service is merely a pretext, and mostly everyone knows that is just political flimflam. It is a corrupt practice that is tolerated because it seems to benefit businesses somewhat more than it hurts customers.
In some cases, they are NOT property. They are treated as such to move the cash around, but the person exercising the privilege sets up a sham business arrangement with the licensee. For instance, the licensee of the cab medallion "hires" a manager with his own metered vehicle, garage, and roster of drivers, has no involvement in the day-to-day operations, and just cashes the checks.
Presumably the answer is corrupt officials? That seems to be the only thing that makes sense - they don't want the State to make the money they want their friends to make it and, of course, share it with them??
It's hard to make blanket statements about the US, it varies quite a bit by state, county, and municipality (that's part of the point.)
Around me, the process is (theoretically) similar to how you describe: you make an application to a local body of elected officials, there's a hearing, and they deny or approve it. Neighbors have an opportunity to object or seek concessions. And I don't think you can really sell a license.
> How on earth do you get from there to licenses being a kind of property?
How on earth do you prevent it? You need to provide stable access to licenses, so that if Joe drives a cab he doesn't end up jobless next year because he lost the taxi license lotto. Suddenly Joe has something he can sell, access to his license. Say we tie the license to the person driving the cab then Lucky cabs can't fire a bad driver because then they lose a license.
Making licenses tradable really doesn't affect the stability of access to licenses or facility to fire drivers in the slightest. You tie the licences to whoever pays for them, and give that entity - firm or individual - grandfather rights to the same number of taxi licences as last year. Sure, if the licences are paid for and renewed by the firms it makes individual drivers dispensable and at risk of unemployment if the taxi firm wants cheaper labour, and if they're paid for and renewed by particular drivers it disincentivises firms from firing then for underperformance; allowing the "owners" of the medallion to collect large amounts of economic rent on a secondary market doesn't change that at all assuming the total number of licenses is still fixed at the same amount.
If anything, arguably it's worse for Joe if Lucky Cabs owns his medallion and also has the opportunity to sell at a profit, and Lucky Cabs are similarly badly off if their drivers own the medallions but don't particularly care for keeping customers happy (perhaps because they're counting down the years til they can sell the medallion on for an order of magnitude more than they originally paid for it).
If you want to encourage flexibility in licenses which are short term leased rather than "owned" you can even give holders the option of pro rata rebates (at the price paid) for trading them in early to encourage people that aren't using their licence to return them.
Basically, the city is in total control of the terms on which medallions can be leased and can collect the full market value of the medallions itself; to not do so is economically indefensible, unless you think giving cash windfalls to its original taxi drivers and speculators is high on the list of civic priorities
In Vancouver, you have a license for a cab (not a driver), and you can put any qualifying driver in that cab. Fire a driver, get a new one, you can still have a cab on the road, but they're not transferable (and they're limited in quantity).
That said, Vancouver's taxi system is a little wonky, though possibly not atypical; there are usually three parties involved: the driver, the person who owns the vehicle, and the person who owns the license (i.e. the cab company), and drivers who don't own their own vehicle typically have to split their profits three ways. More commonly, you pay X dollars per night (split among the two others) and then hope that you make enough fares to make a profit.
Which you usually do, of course. Part of the reason is because the city limits the number of licenses that can be issued; the other part is by crushing competition like Uber under old, outdated laws and regulations (in BC, Uber's black car service falls under the criteria of 'limo', and limos have a minimum charge of ~$65). Which kind of makes sense; if Uber started killing the cab companies, it would be the drivers who would suffer first, and not the companies themselves.
That defeats the purpose of the license. It's not like a driver's license where the goal is to establish some baseline level of competency, it's there specifically to limit the number of taxis/liquor stores/etc.
In many areas it is just like a drivers license and that regime works pretty well. It's a weird desire to arbitrary limit licenses. What's the purpose of that? Limiting the number of sellers doesn't really do much to limit buyers or consumption.
It sounds like a bad idea that's carried forward out of momentum not something that needs to be fixed. It should be replaced with the better approach.
It is an attempt to prevent a tragedy of the commons. NY doesn't have enough road capacity to handle all of the taxis that would be profitable in a free market. Therefore they limit the number of taxis to ease congestion.
>NY doesn't have enough road capacity to handle all of the taxis that would be profitable in a free market. //
Are you sure it will increase the overall number of vehicles on the roads?
There can only be more taxis if there is sufficient demand to pay for them and their drivers. If there are more taxis then there's a downward pressure on prices which, yes, creates the possibility of more demand. But reality doesn't follow that simple a model - it's probably chaotic - as more taxi availability will potentially reduce car and bus usage. If it doesn't reduce car usage then who's getting in the taxis? Taxis are better optimised resources in urban areas than car-ownership. Perhaps people who normally use a bus or walk can now afford a cab - can't have poor people using our transportation /s. Some people will switch to buses from cars because a bus is fine for many journeys and now it's affordable to do bus+cab journey or to do buses mostly and get a cab occasionally.
Suppose there are so many people who have a clean driving license, can pass an advanced motorist test and pass a hospitality test (eg good enough language skills) and pay for a car that passes the necessary road-fitness and emissions tests and thus those people can get a city taxi license. There are so many licensed cabs that the road traffic gets slowed down. Then people will take the bus or walk; there will be less demand and drivers will have to do other jobs. If there are still too many cabs then the barrier for entry can be increased - add your cities second language to the hospitality requirements, add a skid-pan test, increase the ecological requirements on the cars used.
I can't speak to this as a subject I've done a lot of research on, but this reminded me of a story I heard on NPR a few years ago. The story argues that taxis actually spend a disproportionate amount of time on the street, relative to other cars, and so have a disproportionately large effect on the overall city congestion. This is because cars drive point-to-point but taxis stay on the street all day. The conclusion drawn is that this increased congestion will actually cost tons of money.
This point is directly opposed to your statement that "Taxis are better optimised resources in urban areas than car-ownership".
I can't argue that either point is right or wrong, but I'd like to know if you had any information I can read supporting your point about taxis being better optimized for cities.
In any case, I just wanted to contribute this story as another data point along the way.
Taxis here don't drive around without fares generally. [Private] Cars often park on the street too. Cars are most often used for 2-4 journeys per day making the cost of resources per day quite large - taxis are used for ... well I don't know the statistics but a lot more than 4 journeys in a day and they do far more people miles.
So, just looking at street space, if instead of parking my car on a road all day a taxi occupies that space occasionally whilst also doing far more people miles ... the taxi gets more efficient use of space and the resources locked up in the vehicle get more people-miles per unit time.
Of course private cars park in lots too, as do taxis here. Private cars don't often do one way trips in a way that is possible to get a proximal one-way journey in the other direction.
Thanks for the link - I've only read the summary but it doesn't say what the $500million of lost time is compared against? If instead of doing those journeys by taxi everyone walks will they really save enough time to create $500million of benefit? Or, will it just be $500million benefit to the richer folks (their delivery will cost 5¢ less or whatever) vs. $5 work time lost to a poorer person who relies on public transport [blind, hand-wavy, analysis!!].
The reason they're limited in Vancouver (as an example) is because the structure is divided three ways; the cab companies (e.g. Yellow Cab, Black Top Cabs, etc.), the vehicle owner, and the driver (though some few drivers own their vehicles).
Drivers pay a fixed/minimum amount to the vehicle owner and the cab companies, and then they drive around to get as many fares as they can so that they can make sure to make enough to cover their costs, after which they start making a profit.
With more cabs on the road, there are more fares to go around, which means that drivers have to split the same number of fares over a larger pool of drivers, which means the entire industry gets poorer; everyone makes more money except the drivers, who need to start being more aggressive, cutting corners, cheating, ignoring regulations, etc. just to make a living. No one wants that.
Too late to edit: it's kind of interesting how each of the replies to me used the taxi industry in their counter arguments, but not liquor licenses which is what the topic is about.
That makes sense if you're thinking of a drivers' license (where you have to pass a qualification test), but these licenses serve solely to restrict the supply.
It varies by the locale, but I'm not even sure if there are any qualifying tests for obtaining a taxi license (other than basic criteria, like having a commercial drivers' license in good standing, etc.) in most parts of the US. (London is an interesting exception: https://en.wikipedia.org/wiki/Taxicabs_of_the_United_Kingdom)
Licenses become valuable property when they become scarce. In every US municipality I'm aware of, the supply for both liquor licenses and Taxi medallions is tightly restricted. When you simply cannot get a new license by applying to the appropriate authority, it begins to make sense to pay tens of thousands of dollars to adopt an existing license.
I think the parent was asking why the licenses were transferable. I can't sell my driver's license to an aspiring driver, why should I be able to sell a taxi license or a liquor license?
Unless there's a test or certification, transferring them is more like transferring ownership of a car or house. You can't sell your driver's license because that license certifies that you meet the state's minimum demonstration of competence as a driver. A taxi driver has already demonstrated that, they just need permission to act as a taxi driver, which was deliberately made as a scarce resource. It's really more of a coincidence that they are both called licenses, they permit you to do something (drive cars, operate a taxi service), but one certifies competence, the other merely conveys permission.
EDIT:
Perhaps of interest, I went to Prince Edward Island last year and met some fishermen. Apparently their licenses can be sold (they effectively take out a mortgage given the cost) and are used as a sort of retirement plan by the fishermen that own them. But they also (according to them so I'm not sure the precise legal considerations or if it's convention) require that you spend some years working for licensed fishermen before you can purchase one. So sort of a hybrid between the driver's license and the taxi medallion model.
That only answers why they are valuable, not why they are property. It is the issuing authority that intentional makes licenses into property by honoring them after they have been transferred.
The quesion is, why are these licenses honored after a transfer?
There's two aspects to the kinds of licensing at issue:
(1) Quantitative limits, and
(2) Substantive requirements (which vary by specific license) that limit who can use the license.
Letting licenses be transferrable is a way of limiting the public-agency workload in managing #1, because you then have less work managing a queue of pending-availability license requests at the public agency.
Even where license are transferrable, the recipient generally has to submit paperwork to the agency and be approved that the meet the appropriate requiremetns related to #2 before they can use the license.
No, there's a difference between substantive review of applications with availability and queue management (and responding to inquiries) about applications pending availability.
> It sounds like the agency has to check that the applicant meets the criteria for the license in either case.
They aren't two alternatives, they are two different functions. Verifying that the applicant meets the criteria once there is a license available (given the quantitative limits) is one function. The other function is managing distribution of the limited number of licenses. The amount of work required by the public agency for the latter function (#1 in my original list) is greater when if the only way for that to happen is people to surrender unused licenses and then new applicants to apply to the issuing agency and be waitlisted until a slot is available than if a license that the current holder can be transferred directly to a new applicant.
This makes no sense to me. It seems like the major effort would be involved in examining the applicant is necessary in both cases, since that requires collecting individual information and exercising judgement.
The difference between the two is simply and administrative choice of how the queue of available licenses is managed..
You have done nothing to explain why the amount of work is any different between the two cases. You have simply asserted that it is.
Fun fact about the UK. In order to get a license to drive a taxi in London, applicants need to pass an extensive test. Passing the test takes years of preparation and multiple attempts.
I don't have a problem with secondary markets (such as the iPhone secondary market that pops up around all new model releases, based on the private manufacturer making the decision to limit supply), but when it's enabled by regulations and is a product of regulatory capture, there is essentially no justification for it in my book.
In the UK, if you want to sell booze from your shop, you write to the council and apply for a license. They check you and your shop out, and if you seem okay, they grant it. If you want to drive a taxi around your town, you write to the council and apply for a license. They check you and your car out, and if you seem okay, they grant it. This seems really simple and, frankly, natural. It's how all sorts of licenses work in the private sector too - think about copyright licenses, tenancies, etc. How on earth do you get from there to licenses being a kind of property?