Not an equilibrium
So taxi cab tips are up consequent to a new credit card swipe system that encourages large tips. Cheap Talk and Marginal Revolution have both noticed.
Here’s Alex Tabarrok:
Joshua Gross estimates, that this simple nudge has increased the income of taxi drivers by $144 milion per year. Had the drivers demanded this increase via an increase in rates it probably never would have happened.
But does this make the drivers better off? Not unless they own the taxi medallion!
Joshua notes that the new charging system started in 2007.
Recall that New York City taxicabs are heavily regulated: the right to run a cab has to be purchased. The medallion giving you the right to run a cab is expensive. The 2004 annual report of the Taxicab and Limousine Commission gives the price history from 1947 to 2004.
They stopped publishing that graph in subsequent years’ annual reports, but they do report average sale prices:
- 2005: $350,000 individual, $391,000 corporate
- 2006: $411,000 individual, $525,000 corporate
- 2007: $420,964 individual, $573,489 corporate
- 2008: $550,000 individual, $747,000 corporate
- 2009: $584,000 individual, $775,000 corporate
- 2010: $624,000 individual, $850,000 corporate
- 2011: $699,000 individual, $1,000,000 corporate
- 2012: Average annual prices are not yet available.
This surely then was accompanied by an erosion in non-tip payments to drivers since the market for driving cabs is competitive, even if the right to run a cab isn’t. This is my prediction; I haven’t been to New York in a while. Maybe somebody who knows can tell me whether I’m on the right track.