Tuesday, March 31, 2009

Consumers Gain from Taxi Deregulation in Ireland: More Taxis, Lower Prices, Shorter Wait Times


From the article "Regulatory Capture, Property Rights and Taxi Deregulation: A Case Study," by Sean D. Barrett in the Institute of Economic Affairs:

Pressure from incumbent taxi license holders, including brought a government decision in 1978 to limit the number of licences by statutory instrument. This led to the licenses acquiring a scarcity, monopoly value. As the Irish economy grew rapidly after 1987, the value of taxi licences rose rapidly to a high level by international standards. Dublin taxi numbers remained unchanged at 1,800 between 1978 and 1991, when there was an increase of 150. In 1997 there were 1,974 licences and on the eve of deregulation in late 2000 there were 2,721 licenses (see top chart above).

Restricting entry to the Irish taxi business became policy in an era of rapid economic growth. Between 1978 and 2000 the number of persons employed in Ireland increased by 63% from 1.1 million to 1.8 million. Unemployment fell from almost 18% in 1986 to 3.7% in 2001. The number of overseas visitors increased from 2 million to over 6 million in 2000.

The failure to increase taxi numbers in the fastest growing economy in the OECD caused widespread dissatisfaction because of the shortage of taxis in Dublin and elsewhere. Research found that 75% of those interviewed in street surveys disagreed or strongly disagreed with the statement that taxis "can be hired easily at peak times." A total of 72.6% of businesses experienced difficulties in obtaining a taxi, in particular between 4 and 6 p.m. In Dublin city centre some 9% of hourly observations resulted in average waiting times in excess of 15 minutes. During the period 11 p.m. to 4.00 a.m. waiting times in excess of 90 minutes were "frequently observed."

The price of a taxi licence in Dublin rose from I£3,500 ($7,385) in 1980 to I£90,000 ($108,000) in 2000 (MP: This represents an annual increase of 17.6%). Taxi license prices in Dublin were far above those in other European cities before deregulation in Ireland.

Market entry had been restricted from 1978 to 2000. A ministerial proposal to increase the number of taxis by just adding vehicles to existing taxi licences was challenged in the High Court by hackney drivers of private hire vehicles. In Irish transport law taxis are public hire vehicles which may be hailed on the street or at taxi ranks while hackneys are private hire vehicles which have to be hired by phone. The legal challenge was successful. Entry to the taxi sector was deregulated by the High Court and not just restricted to those with existing taxi licences. The High Court judgement stated that the restriction affected the right of people to work in the industry for which they were qualified and the right of the public to the services of taxis. The judgement also referred to the EU dimension of the case. It suggested that the proposed reform may discriminate against non-Irish residents as the great majority of current licence holders would be Irish. Following the deregulation judgement there was a dramatic increase in taxi numbers (see top chart above).

Since deregulation the local authority administration fee for the issue of a taxi licence is I£5,000 ($5,650, see bottom chart above). Large reductions in passenger waiting times have made deregulation popular among the public. There has not been a reduction in either driver or vehicle standards. Taxi deregulation in Ireland followed a restriction of new entrants for 22 years, the second half of which was a period of rapid economic growth.

The implications of the Irish High Court judgements concerning the rights of new market entrants to work in an industry for which they may be qualified and the rights of the public to services are significant in an economy with many cases of regulatory capture. If extended to other sectors the judgements would revolutionise the economy. Current legal opinion is that the taxi deregulation decision is indeed a turning point in Irish law dealing with property rights and market access. However, it is clear that concentrated producer interests are trying to use other aspects of the legal and regulatory framework to try to recapture monopoly rents.

MP: Intense market competition is often the best regulator of all, and the most effective protection for consumers against potential anti-market, anti-consumer behavior of producers. As Adam Smith wrote in the Wealth of Nations:

People of the same trade (e.g. taxi license holders) seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

15 Comments:

At 3/31/2009 7:00 PM, Blogger Courtney said...

the price went down

 
At 3/31/2009 7:06 PM, Blogger Jinglebob said...

Liberal government!

 
At 3/31/2009 7:10 PM, Blogger yamahaeleven said...

The taxi tax went up?

 
At 3/31/2009 7:27 PM, Anonymous Anonymous said...

Allowed privitized taxis vs. munic. owned/operated. competit and prices down?

 
At 3/31/2009 8:01 PM, Blogger like such as said...

co2 emissions increased, causing an earthquake somewhere?

 
At 3/31/2009 8:20 PM, Anonymous andy weintraub said...

Fewer regulations, including price controls, lower licensing requirements, higher cost of other forms of transportation.

 
At 3/31/2009 10:38 PM, Blogger QT said...

"co2 emissions increased, causing an earthquake somewhere?"

What evidence is there to suggest that CO2 or other green house gases are responsible for seismic activity (as opposed to the observed global warming trends)? Seismology is a product of plate techtonics and molten magma deep within the earth's crust. CO2 just doesn't figure in volcanic or seismic events. Better stick to your core competency...economics.

Very interesting example of how monopoly control often fails to serve the customer.

 
At 3/31/2009 11:56 PM, Blogger like such as said...

just a dumb joke, qt.

The obvious answer that Perry was suggesting was that "prices fell." Sounds like a case for deregulation to me. However, since deregulation is against the average liberal agenda, I was guessing at a possible theory we might hear as to why this seemingly good thing would actually be a bad thing.

Sounds absurd, I know, but that's never stopped a good climate change theory in the past.

 
At 4/01/2009 6:18 AM, Anonymous Anonymous said...

All is not as it seems to be. Plus some of the numbers quoted from the article are now out of date.

See here for some more recent commentary.

 
At 4/01/2009 7:09 AM, Anonymous richard said...

Mark,

I think there is a typo somewhere.

Your graph says $108.000 for a licence in 2000, but the text says $180.000

 
At 4/01/2009 1:25 PM, Blogger Size said...

anonymous 6:18,

I read your link. If suppliers don't like the conditions, they have the freedom to stop supplying. Clearly the drivers keep driving because whatever the payoff of driving is currently, their opportunity cost is lower.

If you think their conditions need improving, give them a better tip. The point about the need for licenses in an industry without barriers to entry is a good one, though.

 
At 4/01/2009 3:26 PM, Blogger QT said...

Like such as,

My apologies for snapping at you. It's hard to tell when an online comment is satirical. Afraid that GCC hype kinda pulls my chain. Maybe a smile after the comment might help.

 
At 4/01/2009 5:35 PM, Blogger OBloodyHell said...

> co2 emissions increased, causing an earthquake somewhere?

Perhaps not, but the much more beneficial result was that many, many libtards' heads exploded. And that can never happen enough.

 
At 4/01/2009 5:39 PM, Blogger OBloodyHell said...

> I read your link. If suppliers don't like the conditions, they have the freedom to stop supplying.

LOL, that's not the nature of it. Businessmen are rarely supporters of the Free Market. They usually seek, more than any other, ways to limit entry, and thus, competition.

The idea that the government should ever do anything other than ascertain the core competency of the drivers, plus minimum insurance and safety matters as a part of the licensure process is itself a dangerous meme.

 
At 4/27/2010 6:53 AM, Blogger Jason said...

10 years after deregulation and its clear dereg was and is a disaster for Ireland.
Taxis fares never went down infact they went up substantially.
Passenger journey times increased because of the major taxi traffic problems causing higher fares for passengers.
Some passengers have opted to get out of taxis because of taxi traffic.
No business can be prosperous in such a deregulated mess.
In Dublin City alone where we have a population of 2 million there are 13 thousand taxis.
Ireland is awash with taxis and the industry is destroyed.
Many many attacks on passengers and over charging is common.
With so many taxis and so few places to park law breaking is rampant on the streets of Dublin.
Cops issue fines over and over to the same taxi drivers who have no choice but to presist in their search for work.
Nighlty there are fights amongst drivers over parking places or fares.
After dereg all respectfor drivers within the industry went out the window .. few drivers would help each other should the need arise.
The taxi regulator and the Irish Government made a major blunder with deregulation in Ireland and they know it.
There is an attempt by the regulator and the gov to try backtrack on dereg but the mess they created is going to be hard to fix.
At the moment there is a number of court cases in the pipeline and the Government may end up paying out millions for the mess they and the regulator created.

Deregulation did not work its common sense - If you can't earn any money you can't improve standards.

My advice fight dregulation its not good for anybody in the industry or passengers.

 

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