By Carl Engels for the Chicago Dispatcher
A “lease cap” is a legally imposed maximum amount a taxicab owner can charge a driver to lease the cab for a specific amount of time. Is a lease cap necessary? After all, government doesn't generally impose maximum prices on most goods and services in the economy. The city doesn't tell the grocery store how much it can charge for a dozen eggs, nor does it tell the gas station how much it can charge for a gallon of gasoline.
So why should the government stick their nose into how much a taxicab owner can charge a lease driver? Furthermore, government impositions of maximum prices often do more harm than good.
For example Florida has anti-gouging laws that were designed to protect the public after hurricanes hit. They’ll tell store owners and gasoline stations that they can’t raise their prices for water and gasoline. So what ends up happening is that there are long lines at checkout and at the pump. Fights ensue. Furthermore, since the prices can’t be raised, outsiders lose their incentive to haul in necessary supplies, which would accomplish two very important things - more supplies that are desperately needed and lower prices.
That does not mean that I’m suggesting that someone should be allowed to walk into a nursing home and sell bottles of water at a hundred bucks a pop. This is where government should step in to determine if specific circumstances shock the conscience. But market mechanisms do generally work, even in the aftermath of hurricanes.
Back to lease caps. Should they exist? The answer is yes. Wait a minute. I just exalted the merits of free trade and capitalism so how can I possibly say that the government should mandate the maximum amount that a cab owner can charge a driver?
The reason cab owners shouldn’t be allowed to charge whatever they want to drivers has to do with the fact that the government limits the number of cabs that are allowed to work the streets.
You can’t just walk into City Hall and get a taxi license like you would for other businesses. So if the number of taxi licenses is limited by the government, you could have a situation in which there are a lot more drivers than there are taxicabs. If there were no lease cap in place, drivers would bid up the price to lease a cab, leaving them with nothing.
So the lease cap is the protection to the driver that is designed to counter the medallion, which is the protection to the owner. So it’s not that the free market shouldn’t be allowed to work. It’s that the free market in the taxicab industry has already been constrained.
Mr. Engels,
Very informative! You're saying that the lease cap exists and is proper because the cities limit the number of taxi licenses through the medallion system.
What about places where there are no medallions or restrictions on the number of taxicab licenses. Are you saying the lease cap shouldn't exist in those places?
Salim
Salim wrote, "What about places where there are no medallions or restrictions on the number of taxicab licenses. Are you saying the lease cap shouldn't exist in those places?"
Yes! That's exactly what I'm saying. In a non-medallion system in which there is no limit to the number of taxicab licenses, if there are more drivers than cabs, a driver won't have to simply bid up the price to lease a cab to the point where he'll make no money. At some point, he'll simply go apply for a license himself and become an owner.
Carl Engels
Chicago Dispatcher
You are saying that in a system where the cab license are not limited somebody has to just go apply for a license.
But in a medallion system somebody just has to buy medallion.
Rohit:
I think the point Carl is making is that if there are more drivers than taxicabs, the drivers will not make any money if the number of cabs is limited, e.g. a medallion system.
So even though you can buy a medallion, that doesn't change the fact that the driver will still be left with nothing.
No lease cap is right!!!!!!
This is America. THe market should decide. If drivers don't want to pay they can go somewhere else.
