Information for regulating: The Case of taxis

Abstract

The authors consider the problems of inferring relevant evidence in regulation studies. The model used depends on the assumptions of service at a given point, a single fare, uniform trip length and an infinitely elastic supply. Service elasticities of greater than unity can be ruled out under free-entry conditions. Engaged ratios yield little information but it can be helpful if a price elasticity of greater than unity can be established. Deductions on the range of other variables can then be made. It is found that profits cannot be used alone to indicate a desirable direction for a change in cab numbers. Regulators cannot alter prices and cab numbers to satisfy experimental design requirements. Cruising taxi trades operate in such a way so as to make necessary explicit valuation of the welfare of potential customers excluded from the valuations. Welfare may be improved by bringing into the market those with high valuations of time saved but who are deterred by low service levels. Free entry arguments should be used in decisions on the choice between regulation and competition. (Author/TRRL)