2Taxi_Deregulation_CaseStudy

T H E S U S T A I N E D I M P A C T S O F

T A X I D E R E G U L A T I O N ecaf_19756165

Sean D.Barrett

The Irish High Court decision in2000to deregulate entry to the taxi sector brought a large increase in taxi numbers and reduced waiting times for customers.These developments were sustained through to2008with increased output and reduced waiting times.In view of these lasting successes,arguments that taxi deregulation is unwise and unsustainable are examined.

Keywords:Deregulation,market entry,waiting time savings,regulatory capture,taxi markets,Ireland.

Introduction

The object of this paper is to examine the sustained impact of taxi deregulation in Ireland.Entry to the Irish taxi sector was deregulated by the High Court in2000.The judgment was grounded on the rights of citizens to work in an industry for which they were qualified in the context of regulations which affected public access to taxis and restricted the development of the taxi industry.The judgment was endorsed in a judicial review(High Court reports;Carney, 2001;Murphy,2000).

The short-term results of the High Court deregulation decision are analysed in Barrett (2003).There was a255%increase in taxi numbers by2002compared with

pre-deregulation numbers in2000.By2008, taxi numbers had increased to502%of the pre-deregulationfigure.The main consumer benefit of taxi deregulation from the increased supply of taxis was reduced waiting times.

For producers,deregulation reduced market entry costs because taxi licences no longer had purchase prices as high as

€136,000in Ennis,close to Shannon Airport, or€114,000in Dublin.Licences since deregulation cost€6,300from the Commission for Taxi Regulation.

The era of regulatory capture, 1978–2000

The development of the taxi sector from1978 was dominated by the‘regulatory capture’of the regulatory authorities by incumbent taxi licence holders.This resulted in severe restrictions on the number of new licences and a dramatic rise in the scarcity value of existing taxi licences.Research conducted by the current head of the UK Office of Fair Trading(Fingleton et al.,1997)estimated that had Dublin taxi numbers increased in line with real GDP there would have been afleet of 4,200in Dublin in1997compared with an actualfleet of1,974.The licence value increase in Dublin from€4,400in1980to€114,000in 2000reflected the rent-seeking skills of incumbent licence holders.In the period of rapid economic growth in Ireland in the

1990s,including rapid increases in inward tourism after air transport deregulation in 1986,the shortage of taxis led to long waiting times of as much as an hour and increased consumer dissatisfaction with the sector and its regulators.

The government,in response to consumer pressures,decided to liberalise entry to the taxi sector on a phased basis by raising but retaining the cap on taxi numbers.In response to pressures from existing taxi licence holders the government proposed to secure the limited increase in taxi numbers by attaching extra taxis to existing licences rather than through new market entrants.The latter aspect of the proposal was successfully challenged in the High Court by four hackney operators.The hackney sector in Ireland operated by phone bookings and was not permitted to use taxi ranks or ply for hire on the street.The hackney case that it should be allowed to participate in the expansion of the overall cab sector rather than see that limited expansion confined to existing taxi licence holders was successfully argued before the High Court.

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©2010The Author.Journal compilation©Institute of Economic Affairs2010.Published by Blackwell Publishing,Oxford

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