Regulation and design of taxicab markets
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This dissertation examines metropolitan areas subject to exclusive cruising regulations which prevent taxis affiliated with one city from picking up passengers in other neighboring cities. It examines the regulatory structure that evolved in North America, compares exclusive cruising regulation to a combined regulatory regime, and proposes a market-based mechanism to improve upon existing regulations. The first chapter examines the evolution of regulation of the taxicab industry in different metropolitan areas in North America. It provides an explanation for the prevalence of price and quantity regulations at the local level, and why the industry remains heavily regulated despite numerous attempts at deregulation. The second chapter theoretically investigates the efficiency of exclusive cruising regulation when there are multiple exclusive cruising locations in close proximity. Conventional wisdom suggests it is better to operate a combined regulatory regime, thereby eliminating the empty return trips that occur under exclusive cruising regulation. Under combined regulation, however, drivers have an incentive to be in the location with the highest expected revenue. It is shown that this can undermine regulators' control over the allocation of taxis across disparate locations, outweighing losses from empty return trips. In such situations exclusive cruising regulation would be preferred to combined regulation. When locations are sufficiently similar, it is shown that combined regulation will be preferred to exclusive cruising. The third chapter proposes a regulatory exchange market as an alternative to existing regulatory structures. The proposed mechanism maintains separate affiliations, but allows taxi drivers to exchange the right to pick up passengers in each others' affiliated location by participating in a bilateral market. In this market, taxis can exchange the right to pick up passengers in each others' affiliated locations, for a price paid by market participants affiliated with one location to those affiliated with the other location. It is shown that such an exchange market can be designed to achieve superior outcomes to both exclusive cruising regulation and combined regulation modes. We describe situations where the regulatory exchange market cannot be dominated by any other conceivable regulatory mechanism.