Public Health Policy - Taxicab experience - Complete.pptx

This was an assignment that had been given to us in the first semester of Public Health School, a chapter of a book that we needed to talk about.

1. The Madison Taxicab Policy Analysis Example 9. Policy Problems as Market and Government Failure

2. Usually.. Market and government failures, often do not occur in isolation. When they are both present, they rarely interact in simple and obvious ways. In specific policy contexts, we may observe market failure, with no government response , or we observe no market failure, but extensive government intervention .

3. Taxicab Regulation example: Shows primarily information asymmetry , can become barriers to entry by new firms Shows a brief explanation of why this situation may be difficult to change.

4. Madison’s unique geography affects the taxi market because all crosstown traffic must pass through one of three main roads that connect the east and west sides of the city

5. Situation in Madison: Taxi service is among the most expensive in the nation. Municipal regulations require all cab companies to operate 24 hours a day, 7 days a week, to provide citizens with constant taxi availability. Every cab company must provide citywide service.

6. Process for Operating License: Traffic Engineering Division Transit and Parking Commission $ 1000 fee, Apply for License Common Council Approve Application Deny Application

7. Situation in Madison: Current regulations creates service requirements that pose severe barriers to entry into the taxi market. These barriers have led to a situation in which no new taxi companies have entered Madison’s market in more than 17 years. Competition is weak and cab fares are approximately one-third higher than the national average.

8. The Rationale of Taxi Regulation: Taxis provide door-to-door service. Convenient and valuable means of transportation. In large- and medium-sized cities, taxi service can eliminate some residents’ need for cars. Governments have adopted various forms of licensing and more extensive regulations .

9. Potential market failures In thinking about potential market failures, it is useful to divide the market for taxis into two submarkets. The Cruising Market Phone Reservation Market

10. The Cruising Market Not able to compare cab fares. Potential users are … Not able to consider the safety records of drivers . Not able to review the mechanical safety record of the cab

11. The Cruising Market Instead, consumers accept rides from the first taxi that appears

12. The Cruising Market In this situation taxi users have a very limited basis for judging the safety and quality of taxi service (including clear information on pricing). Therefor, there is asymmetric information in the market.

13. Phone Reservation Market Some of these asymmetric information problems also occur in the telephone reservation market, but most of them are likely to be less severe . Because customers can select the cab company they wish to and can rely to some extent on their previous experience .

14. Phone Reservation Market Another potential market failure is the presence of network externalities . Potential riders are most likely to be interested in a company that has a network of cabs throughout the city.

15. Phone Reservation Market If they require immediate service, then the availability of multiple cabs is likely to reduce waiting times for customers. If they require pick-up at a specific time, then multiple cabs increase the probability of a booking.

16. Types of Taxicab Regulation Governments around the world have adopted a variety of policies to correct some of the market failures in taxi market. To address the information asymmetry, governments: Require insurance Mandate the posting of price information Inspect vehicles for safety Conduct driver-background checks

17. Types of Taxicab Regulation In addition to basic safety regulations and price information, many governments employ two other types of regulation: Price regulation Entry regulation

18. Price regulation Many jurisdictions not only regulate the provision of pricing information, they also directly regulate prices Some cities create a maximum ceiling fare and allow companies to set prices below the ceiling While others set uniform fares for all operators.

19. Price regulation The clearest potential justification for fare regulation occurs in the cruising market Potential customers are in a relatively weak bargaining position on price during peak demand periods or at other times when demand is inelastic, such as at night or during bad weather

20. Types of Taxicab Regulation In addition to basic safety regulations and price information, many governments employ two other types of regulation: Price regulation Entry regulation

21. Entry regulation Government directly control the number of cabs that can operate in their jurisdictions The impact of this control can be observed when jurisdictions change to open entry entry restrictions is also evident in the sale price of taxi licenses , or “medallions.”

22. Entry regulation & Safety! Some argue that unrestricted entry results in a flooded market with intense competition, and taxi operators have little incentive to follow safety regulations. Some consider this argument is irrelevant , and barriers to entry are inefficient method to ensure safe taxi service.

23. Madison’s Taxi Market Union Cab Madison Taxi Badger Cab Cab rides unshared and direct, and fares are calculated by meter In direct competition with Union Cab, offers unshared , metered rides Unlike the others, charges fares based on a zone system , offers shared-ride service

24. Madison’s Taxi Market Union Cab Madison Taxi Badger Cab Union Cab has a 28.4 percent market share. Madison Taxi has a 21.6 percent market share. Its market share is 49.9 percent.

25. Madison’s Traffic Engineering Department seeks “to provide and manage the environmentally sensitive, safe, efficient, affordable, reliable, and convenient movement of people and goods” around the city. The Policy Goals of Taxi Regulation

26. Taxi services are deemed to be an essential part of fulfilling these goals, because city buses have limited routes and cease operation at midnight. A successful system of cab regulations should promote efficiency, equity, favorable fiscal effects and be politically feasible. The Policy Goals of Taxi Regulation

27. An efficient cab market would mean that there are cabs available to passengers who demand cab service at the lowest possible sustainable fares. Equity has two impact categories: the opportunity for new cab operators to enter the industry and the community-wide availability of service to consumers The Policy Goals of Taxi Regulation

28. An efficient cab market would mean that there are cabs available to passengers who demand cab service at the lowest possible sustainable fares. Equity has two impact categories: the opportunity for new cab operators to enter the industry and the community-wide availability of service to consumers The Policy Goals of Taxi Regulation

29. Fiscal effects are another essential consideration because changes in policy can affect costs and revenues to the city. The Policy Goals of Taxi Regulation

30. Political feasibility is likely to play a role in the successful adoption of any new policy. If new regulations impose significant costs on politicians and concentrated interest groups, then they are less likely to be adopted. The Policy Goals of Taxi Regulation

31. Fees: The city requires a $1,000 licensing fee for new cab companies in Madison. In addition, there is a yearly renewal fee of $500 Vehicle permits and driver permits must also be obtained from the city. Costs are $40 per vehicle and $25 per driver. Current Policy in Madison

32. Service: All cab companies in Madison are required to provide service 24 hours a day, 7 days a week (24/7 rule), and they must serve all parts of the city. Other Regulation : Safety regulations enforced by the city include vehicle inspections and driver-background checks. Current Policy in Madison

33. The city retains the right to revoke or suspend driver, vehicle, and operating licenses if any city regulations are violated. To protect against tired drivers, the city prohibits taxi drivers from driving more than 12 hours per shift and requires eight hours of time off between shifts Current Policy in Madison

34. The city also requires companies to post cab fares and to notify the city of their rates. The city must receive notice of any rate changes 28 days before they take effect. Current Policy in Madison

35. The 24/7 rule is the most limiting regulation in the Madison taxi market because, in combination with the 12-hour driving limit, it creates a minimum number of drivers who must be employed by a company to meet city standards. Eliminating the 24/7 Rule

36. This eliminates the opportunity for single drivers to operate cabs unless they are employed by one of the three existing companies. With the 24/7 rule eliminated, the number of taxi operators would increase , and the increased number of taxis operating would result in a decrease in fares. Eliminating the 24/7 Rule

37. Thank You