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Thursday, December 31, 2009

The NYC Taxi Licensing Cartel and Lobbyists

In this thread on, someone was asking about the evils of lobbying. Someone pointed out "Distributed Costs and Concentrated Benefits" as the reason lobbying the State for favors is profitable.

Here's a good example of "Distributed Costs and Concentrated Benefits". Consider the taxi medallion licensing cartel in NYC.

There are a fixed number of taxi medallion licenses. They can be bought and sold. Recently, one traded for approximately $1M. There are approximately 13,000 medallion licenses.

The taxi medallion license holders own a State-backed monopoly/oligopoly worth approximately $13B.

The supply of taxi licenses is restricted. The net effect is that you can only get a taxi at the airport or in busy parts of Manhattan.

Occasionally, there is a proposal to increase the number of medallion licenses. The taxi medallion license holders, with a $13B State-backed cartel, can afford to spend a few million dollars lobbying against changing the law.

As an individual, it doesn't pay for me to spend money lobbying *FOR* more medallion licenses. Instead, I pay a couple of dollars more whenever I need a taxi, or I use another form of transportation.

There are are small handful of people who benefit from the taxi licensing cartel, the current medallion owners. Everyone else pays higher prices when they take a taxi, or a taxi is not available at all.

The medallion owners collect economic rent. Everyone else suffers.

The NYPD occasionally arrests someone for operating a taxi without a license. Due to lobbying by the medallion owners, a handful of police are dedicated to enforcing the cartel.

If the taxi medallion owners had to maintain their own private army of armed thugs to enforce their cartel, then it wouldn't be profitable. Instead, this cost is externalized to the State.

This sort of thing occurs in *EVERY* industry. If you add them all up, it's a huge increased cost and wasted resources. If everyone else is lobbying the State for favors, but you aren't, then you're at a huge disadvantage.


theftthroughinflation said...

Great post!
Lesson learned: Obtaining a state violence backed monopoly is always more profitable than real productive work!
When doing productive work business failure is always a risk. Obtaining a state monopoly is harder than doing productive work but once obtainined even inefficent corporations can ensure profitability.
This kind of behavior in the case of banks and automakers helped crash the economy.

gilliganscorner said...

BTW, Happy New Year FSK. Thanks for all you do!

Chrono said...

Solid post.

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