by Bruce Schaller
and Gorman Gilbert

This is the final installment of a three-part series on the New York City taxicab industry. The first two papers examined the causes of service deficiencies, focusing on the importance of drivers, driver incomes and the regulatory structure governing the industry. After recapping the findings from the first two papers, this paper looks to the future, analyzing nine strategies for improving service and evaluating the likely efficacy of recent city regulations and the potential for market-based policies.



.....Continue the Status Quo
.....More Effectively Enforce Rules
.....Adopt New Regulatory Programs
.....Establish Stricter Driver Licensing and Training Requirements
.....Lift Cap on Number of Taxicabs
.....Legalize Street Hail for FHVs
.....Hold Medallion Owners More Responsible for Service Quality
.....Regulate Driver Working Conditions
.....Restructure Taxi Medallion Ownership




Problems with taxi service in New York City have been notoriously difficult to solve. Despite the best attempts of a succession of Mayoral commissions and regulators, taxi passengers still complain of a litany of service problems: fast meters, rude drivers, reckless driving, service refusals, deteriorated cars and drivers unfamiliar with city geography, to name a few. As a result, taxi service ranks last in New Yorkers' ratings of taxi, private autos, subway and local bus.(1)

Our analysis has found that two issues lie as the wellspring of most service problems:

How then can good drivers be attracted to making a career out of taxi driving? How can taxi owners be infused with a concern for passenger service? What steps can government take to achieve these policy objectives? Will newly enacted policies be effective in addressing these two basic issues? The importance of taxis as a source of mobility to millions of residents and visitors makes these questions a compelling challenge to public policy.

The remainder of this paper addresses these questions. Section 2 examines the service issues. In Section 3 nine strategies for action are considered. Finally, Section 4 addresses the question of how to implement a better taxi regulatory regime in New York.


The quality of taxi service is best defined in terms of what taxi passengers experience. In New York, customers perceive four elements of service: fare; availability; vehicle condition; and driver. Improving service quality means considering how these elements can be improved.

The taxi fare. Because of the higher demand for taxi service and hence the higher utilization rates of New York City taxis, New Yorkers have historically enjoyed a low taxi fare compared with other large US cities. Fares have not been an ongoing public issue. New York taxi fares are near an all-time low compared with transit fares. Many potential users pay higher fares for black car services. Scarcely a objection arose over the March, 1996 fare increase of 20%.

Even though the fare increase raised little protest, the public does not feel that the service measures up to the cost. Asked to rate 7 aspects of taxi service in a recent survey, New Yorkers gave the lowest rating to cabs being "a good value for the money."(3) Evidently, taxi customers want taxi service to improve rather than the price to be reduced to a level commensurate with service quality.

Taxi availability. For anyone attempting to engage a New York City taxi the issue of taxi availability needs no explanation. Taxi hailers in Manhattan quickly learn the best and worst places to stand when hailing a cab. They also learn that there are times of the day and weather conditions that make taxi hailing a frustrating exercise. And, would-be taxi patrons outside of central and lower Manhattan and the airports know that there are few places where available yellow cabs can be found. The TLC's 1988 analysis of taxi trip sheets shows that 94% of all taxi trips were hailed within central and lower Manhattan,(4) a statistic likely to hold true today.

Taxicab vehicle conditions. While not accounting for a high percentage of formal passenger complaints received by the City, vehicle quality is an observable problem. Not only are many taxicabs dirty; they are also getting older and many are in poor repair. The TLC estimates that the average mileage on a taxicab when taken out of service is 340,000 miles. Largely as a result of advanced age, 31% of taxicabs have major structural defects and 72% fail inspections on the first try. The fact that passengers do not issue many formal complaints about dirty, old, or defective cabs may simply mean that passengers view other service problems as more serious. (In light of these problems, TLC adopted regulations in January, 1996, requiring that cabs be replaced after no more than 5 years in service, and that vehicles be brand new when put into service.)

Driver quality. The most prevalent public complaints involve the behavior of drivers: driver inability to understand English; driver inability to find major destinations; driver discourtesy; reckless driving; refusal to pick up hailers, especially minorities; and driver overcharging. It is also clear that vehicle cleanliness is at least partially a result of driver behavior, as is taxi availability. One can convincingly argue that driver behavior is the single most critical element influencing the public's evaluation of taxi service quality. Consequently, any serious investigation of service quality must focus on the quality and behavior of taxi drivers.

In two recent papers Schaller and Gilbert examine the critical role of driver turnover in the provision of good taxi service.(5) They show that full-time drivers with four or more years of experience receive summonses for serious violations, such as reckless driving, overcharges, and refusals, at a rate far lower than that of less experienced and part-time drivers. But nearly one-half of all taxi drivers leave the industry within four years of becoming licensed, and two-thirds leave within six years. Schaller and Gilbert further show that the turnover of drivers is greater among those drivers who have training and experience in other employment sectors. To improve taxi service it is therefore necessary to increase the retention of good drivers in the industry.

Schaller and Gilbert focus on driver compensation as the central element in retaining good drivers. Compensation is most critical for lessees, that is, drivers who do not own a medallion license. These drivers lease their cabs from either medallion owners or management companies acting on behalf of owners. While traditional fleets lease by the shift, a sizable number of drivers lease on a long-term basis and pay a weekly lease fee. In return for lease fees, owners provide medallion licenses, auto and workers compensation insurance, and sometimes (but not always) the vehicles. Drivers pay for fuel and sometimes the cost of providing and maintaining the vehicle.

Drivers dislike leasing for several reasons. Leasing shifts many of the financial risks of taxi operation to drivers' shoulders. Drivers bear the financial consequences of a bad day on the road. When costs rise, lease drivers are at the mercy of owners' decisions to increase lease fees. Also, as "independent contractors," drivers receive virtually no fringe benefits. Schaller and Gilbert show that leasing, aided by the medallion system, is the critical mechanism that produces low driver compensation and hence driver turnover and poor quality taxi service.


What should the City government do to address taxi service problems?

In designing a strategy, the City government can only use the tools of a regulator: setting fares; controlling the number of taxis; prescribing the way cabs are licensed; and setting operating and safety rules governing driver and owner behavior. Other solutions that might be helpful, such as altering the language skills of the labor market from which taxi drivers are drawn, improving traffic conditions or the weather, or reducing the prices of cabs, parts and fuel, are largely outside the purview of taxi officials.

As regulators, City officials can choose among three types of actions:

  1. Improve the effectiveness of existing regulations through better administration and enforcement.
  2. Adopt new regulatory programs to enhance the regulatory incentives for taxi owners and drivers to provide good service.
  3. Strengthen incentives more fundamentally by altering the relationships between taxi owners and drivers, and between the industry and its customers.

While these approaches lie along a continuum and are not mutually exclusive, they define significantly different ways to change the incentives faced by taxi owners and drivers. The first two approaches continue a "regulatory control" approach whereby incentives are imposed directly from city regulations. By contrast, the third approach attempts to change incentives stemming from the way drivers are compensated or the way owners are held accountable to the public.

Along this continuum lie specific strategies that the City might follow in addressing its taxi service problems. Nine strategies are of particular importance:

  1. Continue the status quo
  2. More effectively enforce rules
  3. Adopt new regulatory programs
  4. Establish stricter driver licensing and training requirements
  5. Lift cap on number of taxicabs
  6. Legalize street hail for for-hire-vehicles
  7. Hold medallion owners more responsible for service quality
  8. Regulate driver working conditions; and
  9. Restructure taxi medallion ownership.

Since taking office in 1994, Mayor Rudolph W. Giuliani and his TLC Chairman, Christopher Lynn, have made major policy changes that fit under numbers 2, 4, 5 and 8. These initiatives will be considered in the relevant sections.

3.1 Continue the Status Quo

Facing a barrage of headline-grabbing TLC initiatives, "status quo" hardly seems like an option worth mentioning. Still, it is important to note that even with a strict status quo approach, two significant long-term trends would probably continue. First, the number of corporate medallions leased by the shift instead of long-term would probably continue to grow. Since drivers of shift-leased cabs have the highest rate of passenger complaints, this trend bodes ill for service quality. Second, for-hire vehicles (FHVs) would probably continue their incursion into the street hail market that was once the exclusive province of medallion cabs, generating further pressure for repeal of the legal prohibition on FHV street hail. FHVs may also gain business from passengers fed up with unsatisfactory taxi service.

3.2 More Effectively Enforce Rules

More intensive rule enforcement can enhance the effectiveness of current regulations. The Giuliani Administration has followed this approach by shifting enforcement responsibilities from civilian TLC inspectors to police officers. During previous mayoralties, TLC took steps to improve enforcement by upgrading inspector training, constructing a new vehicle inspection center, conducting undercover operations, and obtaining and using its power to seize the vehicles of illegal operators.

There are three serious limitations to this strategy's effectiveness. One is the level of enforcement required. The size of the city and the numbers of taxis, FHVs, and illegal vehicles are so great that the amount of enforcement personnel required to ensure compliance is staggering. At its peak, the TLC had fewer than 200 inspectors to accomplish this task. The Police Department might be a more effective enforcement agent simply because of its much greater number of officers, the current focus on policing issues and possibly greater effectiveness of police officers, who are more highly paid and more intensively trained than are TLC inspectors. On the other hand, the many enforcement demands placed on police officers suggest that the level of enforcement might actually decline, except during times when police officers are directed to focus on taxi issues. An attenuated institutional connection between enforcement (now in the Police Department) and licensing and adjudication functions (still in TLC) may also diminish regulatory effectiveness. It was not without reason that the City took this enforcement responsibility away from the Police Department twenty-five years ago and established the TLC!

The other two problems with this strategy are less obvious. One is a practical problem: it can be tempting to target enforcement efforts against generally honest and legitimate operators rather than against egregious violators. Legal taxi and FHV operators have for years complained that they are easy targets for enforcement agents while gypsies operate with impunity. Although summons statistics refute the most serious of these claims, the potential for misguided enforcement priorities remains. Agencies wishing to show large numbers of summonses issued and high percentages of fines collected can do so by focusing on minor offenses of legitimate operators. The net result is little or no impact on the quality of taxi service provided to the public.

The other problem is that fining or eliminating bad taxi drivers does little to raise the overall quality of the rest of the driver work force. The compensation of other drivers will not increase because a few drivers are eliminated from the system, leaving the fundamental problems ignored.

This strategy is, therefore, of limited value. Better enforcement and administration do not fundamentally change the incentives affecting the behavior of taxi owners and drivers. Shrinking City budgets further limit what even the most skillful regulator can accomplish with this approach.

3.3 Adopt New Regulatory Programs

This is, perhaps, the natural instinct of a regulatory agency. Despite the prevailing anti-regulatory mood and depending on the issue, this approach can chalk up significant gains. The TLC's bad driver program illustrates the potential. The TLC found that a mere one percent of all licensed taxi drivers accounted for 10% of the rule violations. Beginning in 1989 the TLC targeted drivers who persistently committed serious rule violations. Some were given retraining; others were given license suspensions and revocations. The program reduced the number of drivers with a pattern of persistent violations by 50%. A similar effort could focus on taxi owners, thereby gradually weeding out those owners who repeatedly violate City rules or who lease to drivers who are rule violators.

The limitations to this approach are partly a function of the limits to enforcement since no rule can be enforced absolutely. Another limit is that some problems are more amenable to rule-making and enforcement. It is one thing to catch drivers who repeatedly commit serious rule violations and quite another matter to enforce rules aimed at more sublime service improvements concerning courtesy, language skills or careful driving.

3.4 Establish Stricter Driver Licensing and Training Requirements

This strategy, which might be viewed as a particular case of the previous one, has been vigorously pursued by the current as well as previous administrations. Applicants must now pass through several hoops to become taxi drivers. They must pass an English exam (about 30% fail it), complete a 40 or 80 hour training course, and pass a final exam. In the wake of changes last fall in both the content and administration, about 33% fail the final exam, although an uncounted number pass on a second attempt.

Given the public complaints about taxi drivers, more demanding standards for drivers entering the industry are easy to defend. This strategy directly addresses the public's concerns about drivers' qualifications and harks to the famous London model in which prospective drivers must pass a rigorous training and testing regime appropriately called "the knowledge."

Popularity aside, is this an effective strategy? Two types of effects should be considered: the direct impact of higher standards; and the indirect impact of a possibly reduced flow of new drivers to the industry.

Tougher testing and more stringent administration (e.g., by varying question wording and order to prevent memorization of correct answers) surely weed out a significant share of unqualified applicants. But experience and logic suggest that there are real limits to this strategy. For one thing, the capability of such tests to distinguish "good" drivers has not been demonstrated. Revisions to the English test in 1992 and a subsequent rise in the failure rate did not stem complaints about drivers' language abilities. New tests may fail more applicants, but are the ones who pass competent? Second, driver quality has been linked most strongly to experience and full-time commitment to the job. Even if new drivers are better than their predecessors, if they do not stay in the industry, the impact of the driver testing on service quality will not be noticeable.

An effective testing regimen probably needs to include one-on-one testing of English skills. The current examinations test written and aural (English listening comprehension) skills. These skills do not necessarily correlate to oral skills, as anyone who has learned to read but not speak a foreign language knows. Testing of speaking ability is not part of the new procedures for driver applicants, however. Experience indicates that such testing is needed, even though it has several drawbacks. It is labor-intensive, and it heightens an existing corruption hazard.

The most important impact of stricter entry standards may be indirect if they cause a change in the relationship between taxi medallion owners and drivers. Stricter driver licensing requirements might severely restrict the numbers of new drivers, thereby reducing the ability of taxi owners to find drivers at prevailing lease rates. This change might result in greater driver incomes and better treatment overall, vital steps toward enticing the better drivers to stay in the industry and reducing driver turnover. It is too early to tell whether the most recent changes will reduce the flow of new drivers, much less whether there is an impact on driver working conditions or the retention of good drivers.

3.5 Lift Cap on Number of Taxicabs

The fixed cap of 11,787 medallions has long seemed an anathema: how can it be reasonable to fix the number of medallions for over fifty years? Have not the City —and travel needs within it — changed drastically during five decades?

The medallion cap has been a powerful illustration of how perverse incentives within the industry can exercise a harmful sway over service quality. The cap enabled medallion licenses to gain an enormous monetary value, which led taxi owners — very logically — to focus on protecting the values of their investments. The industry fought against the issuance of more medallion licenses even though demand for taxi service increased over the years, even though communities outside of Manhattan and specific Manhattan markets, such as Wall Street firms, turned increasingly toward gypsy cabs and the prearranged services offered by for-hire vehicles (FHVs), and even though minority groups and persons destined for non-Manhattan locales complained about being refused service. In this sense, the medallion cap has been deeply harmful to taxi service.

Over the years, several mayors sought and failed to increase the number of medallion licenses. The Giuliani administration, however, has obtained State Legislative and City Council approval to sell 400 more licenses over a three-year period, primarily to help plug continuing budget deficits. The first set of 133 licenses is scheduled to be sold through sealed bids in mid-1996.

Although an increase of this magnitude is too small to make medallion taxi service available throughout New York City, adding 400 cabs is a constructive step. Breaking a cap that has survived so long will be concrete evidence that the City government can pursue important public policy objectives despite industry opposition. More cabs will also provide more taxi service, by itself a worthwhile objective even if the actual amount is small.

Serious factors do limit the benefits of additional licenses. Like the proposals of previous mayors, the 400 new cabs will be a one-shot increase — a fact that helped pave the way toward legislative approval. Thus far, no mayor has set forth a process for regularly reviewing the need for more taxicabs and adding cabs on a continuing basis depending on demand. A process of regular review would focus debate on an important service issue: how to provide hail service throughout the city. If the City monitored the traffic and environmental impact of the 400 new cabs, it might be able to show minimal impacts.(6) Periodic reviews might thus lead the City past current environmental constraints.

A second limiting factor is that the impact of the medallion system on driver income — and hence service quality — is probably minimal.(7) Thus, more effective steps need to be considered to address the fundamental sources of problems with taxi service.

3.6 Legalize Street Hail for FHVs

This is a variant of the previous strategy. Successive City administrations have sought to bring legal street hail service to neighborhoods outside the portions of Manhattan in which medallion cabs concentrate. The Smith Committee, formed by Mayor Edward I. Koch in 1980, recommended the establishment of a new category of for-hire vehicles, vehicles painted with green stripes to designate their legal right to pick up street-hail passengers outside the area south of 95th Street in Manhattan. Mayor David N. Dinkins proposed an altogether different approach in which the City government would issue two types of medallions to replace the current medallion and FHV licenses.

Both of these proposals addressed the need for legal outerborough street hail service. But they would have further institutionalized the current problematic situation in which two industries provide very similar services and exist in uneasily close proximity. By allowing FHVs some level of street hail rights, these proposals also raised intense fears within the taxi industry, which successfully fought their adoption.

3.7 Hold Medallion Owners More Responsible for Service Quality

There are two levels at which this strategy might be applied. It might be used to make current regulations more effective, or it could dramatically depart from the current regulatory approach by changing the relationship between the taxi industry and its customers.

The first level is clearly the most politically feasible. The TLC made a concerted effort during the past several years to lessen the appeal of medallions as speculative investments and to increase their use as investments by persons who are committed to providing taxi service. To do so, the City required that individually owned medallion taxis be driven by owners, thereby reducing the incidence of non-owner drivers. TLC also required taxi owners to notify TLC when they turn operating responsibilities over to management companies and required a segment of these companies to register with TLC and meet certain operating standards. Further regulatory actions could be taken to make more direct the link between the medallion owners and the quality of service received by the public.

This approach is politically feasible in that it does not require Council approval, only changes in TLC rules. However, it does not produce changes in the relationships between drivers and owners, nor does it create more positive incentives for either drivers or owners to improve service. It acts merely to discourage owners from ignoring their responsibilities.

The strategy of holding taxi owners responsible might also be employed to create a more fundamental change in the incentives experienced by owners. Currently, owners enjoy a level of anonymity from the perspective of the public. Since passengers cannot easily distinguish one owner's cab from the cab of another owner, there is no direct customer-owner interaction. In addition, street hail virtually eliminates customers' ability to choose cabs on the basis of previous experience with that operator.

The City government could alter this situation by requiring taxis to affiliate with groups or companies, each with an identifiable color scheme and with a business telephone number posted on the exterior of each vehicle. The City might also reverse a decision, made in the early 1980s, to remove two-way radios from cabs and devote them to serving street hails. It might then recombine the medallion taxi industry with segments of the FHV industry, particularly those serving corporate accounts. Due to the amount of business they provide, these corporate customers have exercised powerful control over the service quality of contracted FHV companies.

This particular strategy would mimic taxi industries in other cities by enabling customers to distinguish between good and bad operators and to call taxi operators directly when customers have service concerns. Furthermore, this strategy would create a customer base with the pocketbook power to punish taxi owners who failed to heed service complaints.

There are several difficulties with this strategy. Simply labeling cabs with company names and painting on affiliation colors is of little use to customers who want to hail a cab quickly. The full strategy, involving merging the medallion industry with parts of the FHV industry, might bring back the original problem of too few cabs available for street hail customers. This strategy would require a complex transition from the current set-up. Competing interests of different industry segments and customer groups would threaten to forestall adoption of any plan.

3.8 Regulate Driver Working Conditions

This strategy also departs from the regulatory-control approach by attempting to change the economic and business relationship between drivers and owners. The objective is to improve the working conditions for drivers and retain those most able and experienced to serve the public well.

Two possible actions fall within this strategy. One is to regulate lease rates or other aspects of compensation, a step TLC took in early 1996. Under the new rule, adopted in concert with a 20% fare increase, lease rates may rise no more than 14% of their 1995 level.(8)

The new lease caps will likely prevent lease rates from rising as much as they would have otherwise. Driver incomes are likely to rise significantly once demand for taxi trips recovers from a drop-off produced by a higher fare.(9) Most significantly, these gains will be preserved as long as the lease caps remain in place. By contrast, the gains in driver incomes from the 1987 and 1990 fare increases were steadily eroded as lease fees rose.

Maintaining the effectiveness of the lease fee cap may test the talent of even the most sophisticated regulators, however. Owners may attempt various ploys to circumvent the caps. They may require under-the-table payments that exceed City caps. They may also renege on their responsibilities, letting car maintenance lag, for example.

Industry-wide lease caps may also lead to unintended consequences. One is readily foreseeable. The new regulations make "medallion-only" leases more attractive to taxi owners. This is because all owners receive the same percentage increase in lease fees while medallion-only lessees do not have to foot the substantial bill of buying new cars and replacing them every 3 years, as another new rule requires. The growth of medallion-only leases appears to be undesirable since they allow taxi owners to be even less responsible for service, as they do not even own the cars!

Now that TLC has acted to regulate lease rates, experience will show what problems actually arise. A second option—abolishing leasing—is worthy of serious consideration if the new lease caps prove ineffective or run into serious difficulties.

Leasing was legalized by the TLC in 1979. TLC could rescind this privilege and require that all non-owner-drivers be employees of the medallion owner or the owner's management firm. The result would be that owners would have to pay Social Security taxes, provide unemployment insurance and make income tax withholdings for each driver.

Taxi owners would most likely revert to hiring drivers on a commission basis, paying drivers a percentage of each day's take. Many drivers favor this change because it would force owners to share the financial risks of a poor day on the streets. Commission arrangements are also viewed as fostering a more respectful and supportive relationship between drivers and owners. Abolishing leasing would raise serious issues, however. Commission arrangements create an unfortunate incentive for drivers to work "off the meter," since drivers can pocket 100% of the fare from any trips not recorded by the taximeter. A major uncertainty is enforcement. Would owners readily comply? If not, what enforcement effort would be needed?

3.9 Restructure Taxi Medallion Ownership

The relationship between drivers and owners is not an issue in the case of owner-driven individual medallion cabs. As a result, the earning potential is far greater for owner-drivers than for lessees.(10) Another strategy is therefore to create more owner-driven cabs. To accomplish this result, the City Council would have to pass legislation converting (some or all) corporately-owned taxis to individually-owned status when the license is sold. Given sales levels, this transition would occur over a long period of time.

While clearly a contentious strategy, this option is very simple and would have a profound effect on the taxi industry in New York. It would place more of the industry in the hands of owner-drivers, who have been shown to be the best New York taxi drivers. It would also reduce the role of management companies and absentee medallion owners, albeit slowly. And, it would encourage more drivers to stay in the industry longer.


For over a decade, numerous public figures — including mayors, taxi critics, editorial writers and academics — have debated various taxi regulatory options. A high-profile public debate has centered on plans to expand the number of licensed taxis. Unfortunately, even a large increase would fail to touch the central root causes of deficiencies in service quality.

Somewhat separately from the broad public debate, TLC has pursued regulatory initiatives such as the "bad driver" program, closing administrative loopholes and more effective enforcement operations. Although clearly worthwhile, these initiatives are generally subject to the limitations of the regulatory-control approach, relying as they do on summonses, fines and other regulatory sanctions, rather than any type of market forces.

In the last several years, the debate has begun to encompass a broader range of strategies. This shift has occurred because regulators and the public have focused more intently on the critical need to better retain drivers in the industry while better understanding the hurdles to doing so. Recent TLC rule-making reflects this shift.

We have argued that any real solutions to taxi service problems must harness market-type forces. What does this mean in the context of the New York taxi industry? The classic rationale for free markets is that allowing private individuals to pursue their self-interest produces the greatest public good. In an industry in which both the quantity and price of service are closely regulated, and in which by the nature of the service customers have minimal opportunity to choose the best among competing service providers, using market forces hardly means letting taxi owners and drivers do as they please. Using market forces does mean rearranging the relationships among owners, drivers and customers. It means replacing the perverse incentives that riddle the current system with incentives that encourage private individuals to serve the public good.

In two of the strategic areas that we consider the most promising avenues for service improvement — establishing stricter driver licensing procedures and regulating the working conditions of drivers — TLC has recently taken important steps.

These actions are major steps in the right direction. They focus on industry economics and the relationship between owners and drivers. But will this regulatory program be sufficient to give New Yorkers the taxi service a world class city should enjoy?

The coming months provide the opportunity to evaluate these policies based on experience. Of particular interest is any change in the inflow of new drivers, the turnover of experienced drivers, and driver incomes and lease fees.

Our guess is that however positive the results from these yardsticks, the job of improving cab service is far from over.

One part of the task that remains is probably to improve the new policies themselves. TLC may need to begin testing the English-speaking skills of prospective drivers, in addition to their listening, reading and writing skills. Lease fee caps may need to be adjusted to discourage taxi owners from further shedding their responsibilities for providing and maintaining vehicles. Experience with lease caps may call for steps to improve owner compliance.

More fundamental additional steps may also be needed. The relationship between drivers and owners probably needs further reform. While lease rate caps will bolster driver incomes, better pay is probably not, by itself, sufficient to retain enough skilled drivers. Steps need to be taken to reduce drivers' financial risks from a bad day's take and to provide fringe benefits. To address these issues, regulators should be ready to consider the more radical step of abolishing leasing altogether.

Additional strategies should be employed. The most promising strategies were discussed in Sections 3.5, 3.7 and 3.9: bringing customers' influence to bear more effectively; changing the ratio of corporate to individual medallions; and instituting a continuing process for reviewing the need for more cabs that may allow changes in the number of cabs depending on the demand.

Regardless of which options are implemented, the central conclusion is the same: substantial improvements in New York taxi service depend on fundamentally changing the relationship between drivers and owners and changing the perverse incentives ingrained in the industry. Substantial progress has been made, both in public understanding and public policy. The implications of our conclusion have not been fully articulated in City policy, however. It will take sustained political will combined with administrative skill to do so.


1 Based on 1995 telephone survey, conducted for MTA New York City Transit, of 3,000 New York City residents making four or more trips by any means of transportation in a typical week. Respondents were asked to rank overall service by each mode on a zero to 10 scale, with zero being the worse possible service and 10 the best. The mean rating for taxi service was 5.4, compared with 7.4 for private auto, 6.4 for subway and 6.3 for local bus. Taxis also ranked last in the eyes of Manhattan residents, who are far more likely than outerborough residents to use medallion cabs, and for whom taxi availability is far less of an issue. (Sixty-seven percent of Manhattan residents had used a taxi in the previous two weeks.) Ratings among Manhattan residents were 5.9 for taxis, 6.6 for the subway, 6.3 for local bus and 6.0 for private auto.

2 See Schaller and Gilbert, "Factors of Production in a Regulated Industry: Improving the Proficiency of New York City Taxicab Drivers," Transportation Quarterly, Fall 1995, and "Villain or Bogeyman? New York's Taxi Medallion System," Transportation Quarterly, Winter 1996, for analysis on both these points.

3 1995 telephone survey of 3,000 New York City residents making four or more trips by any means of transportation in a typical week, conducted for MTA New York City Transit. Ratings for aspects of taxi service were 7.0 for overall convenience; 6.4 for speed of travel, reliability of travel time, and overall comfort of trip; 5.9 for personal security; 4.6 for safety from accidents; and 4.4 for good value for the money. Among Manhattan residents, ratings were nearly identical to these citywide figures, except ratings were higher for overall convenience and for personal security (7.7 and 6.2, respectively).

4 Bruce Schaller, "New York City Taxicab Fact Book, 3rd Edition." NYC Taxi and Limousine Commission, May 1994, page 5.

5 Schaller and Gilbert, ibid., 1995 and 1996.

6 Using the first round of licenses as a "test," environmental impacts could be estimated from actual experience rather than the usual "conservative" assumptions that amount to a worst-case scenario.

7 See Schaller and Gilbert, ibid., 1996.

8 TLC exempted the 2,000 cabs run by unionized fleets out of concern that the new regulations not interfere with collective bargaining. The union contract provides that drivers retain no less than one-half of the incremental revenues from a fare increase.

9 It has been estimated that it took 4 or 5 months for demand for service to recover after the 1990 fare increase. See Bruce Schaller, "New York City Taxicab Fact Book, 3rd Edition," page 16.

10 Schaller and Gilbert, ibid., 1995.

Copyright 1996 Eno Transportation Foundation, Inc.
Published in TRANSPORTATION QUARTERLY, Vol. 50, No. 2, Spring 1996.

The first and second papers in this series:

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