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Excessive regulation turns Boston taxi industry into corrupt mess

The Globe’s searing series on the ugly side of taxis in Boston reminds us that excessive regulation can turn entire industries into shadowy, corrupt spheres. The purpose of taxi regulation is simply to protect passengers against being fleeced by unscrupulous cabbies, and to keep passengers, bystanders, and the environment safe. Yet the system instead has evolved mainly to enrich the holders of government-issued taxi medallions, even as taxi drivers struggle to earn a living and passengers pay some of the highest rates in the country.

An obvious way for Boston’s budding mayoral candidates to show their commitment to a freer, better city is to champion far-reaching reform of the taxi system. The exposure of the problems with the medallion system creates an opportunity to replace it with an annual license fee, extend single-city cab systems into a regional network, and permit genuine price competition in car service.

Boston has regulated hackney carriages since 1795, but the current system dates from the Great Depression, when laissez-faire competition seemed passé. A 1930s law allowed for 1,525 annual taxi licenses, a number that has gone up to 1,825 today because the act allows increases if “public convenience and necessity require a higher limit.” Under the law, the city can charge an annual fee for the renewal of these licenses, but the fee has never been high enough. As a result, medallions — which can be bought and sold on the private market — have acquired great value, and medallion owners have an incentive to resist any efforts to increase the supply.

Yet restricting the number of medallions to the point where the right to simply operate a taxi costs $600,000 is not in the city’s best interests. Drivers end up working for medallion owners on unfavorable terms because they themselves can’t afford the up-front cost. And the high cost of the medallion system puts upward pressure on city-mandated taxi rates.


Better regulation would base the fees on a hard estimate of the burden each cab imposes on its surroundings. Just like other cars, cabs create congestion, pollution, and safety risks for pedestrians and other drivers; these and other problems associated with driving amount to a social cost of 10 cents per mile, by one estimate. So if Boston cabs travel an average of 60,000 miles per year, the annual medallion fee should be about $6,000.


Current medallion owners should keep their right to renew their licenses, just as the statute says, but so should anyone else, as long as they pay the annual fee. If, at some future date, Boston decides that it has too many taxis, it can always raise the annual fee to the point where license holders stop renewing.

More entry into the cab business will mean more jobs for drivers, and more available cabs for riders. It can also mean lower prices for customers, if our rate regulations are tweaked to allow more price competition. While price regulations are usually a mistake, they make some sense for taxicabs: Rate-gouging during peak periods is a real risk, and no one wants to haggle over every cab ride.

If there were many more cabs, then business will be scarcer for each cab, and cabs might want to cut rates to attract business or offer special discounts to frequent riders. Cab companies should be allowed to post and advertise lower rates — and then use electronic cab services, like Uber, to help customers find cheaper cabs. There may be a public interest in cab fare ceilings, but there is no case for cab rate floors.

The other obvious reform is to end our archaic city-specific system that precludes a Boston cab driver who has dropped someone off in Kendall Square from picking up a fare back to Boston. The current system wastes driver time, creates unnecessary congestion, and harms the environment by engendering wasteful driving.


It might seem impossible to move to such a system from the present one, but new technologies can help. Even if, for instance, Boston and Cambridge each maintained their own cab systems, cabbies from one city should be allowed to pick up in the other areas as long as they pay a fee. Current GPS technology should make that easy to implement, with drivers paying a small electronic fee for each fare picked up away from home.

No matter what, the city needs to reform its Depression-era taxi system — which is just one example of the ancient regulations that stifle Boston. Voters should demand that mayoral candidates explain how they will change those regulations to create a more efficient, more affordable city. Reforming the medallion process, allowing rate competition, and promoting more cooperation across municipal lines is a good place for those candidates to start.

Edward L. Glaeser, a Harvard economist, is director of the Rappaport Institute for Greater Boston.