Taxi medallion systems

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Taxi medallion systems are used by municipalities to control the entrance of new taxis and limit the supply of taxis on the road. Medallions, or limited licenses, give drivers the right to pick up customers in the municipality where the license is issued, though drivers can take customers anywhere. There is always a fixed quantity of medallions available. Localities may auction off new licenses or give them away through a lottery, and often a secondary market for licenses can emerge as well. If auctioned, localities raise funds in the process. These systems aim to reduce traffic, improve quality of service, and cut down the number of passenger-less taxis on the road. The most prominent example of this in the United States is the medallion system in New York City.




A municipality has high traffic and many taxi drivers. Because of this, taxi drivers spend much of their time sitting in traffic without any passengers, which requires them to work more hours to earn an acceptable income. Additionally, drivers spend more time at taxi stops (such as the airport) to increase the chances of getting a customer. This both decreases the ability for taxis to serve a broad range of customers and leads to even more traffic and more time spent by taxi drivers without passengers. To combat this, the municipality caps the number of taxis allowed to pick up customers at 5,000. This reduces the number of taxis on the road, decreases the incentive to spend time at stops, and allows drivers to work fewer hours to earn the same amount of income. As a result, traffic is reduced, taxi service is improved, and the amount of pollutants entering the air from cars may also be subsequently reduced.



Tradeoffs of implementing this policy may include:

  1. Increase in fare prices as a result of supply restriction
  2. Increased customer wait times in dispatch market, as street hails (lower cost to driver) become easier to compete for
  3. Higher barrier to entry for drivers
  4. Money flows to rent-seeking investors and away from cab drivers
  5. Because value of driving a cab increases, an underground market for unregulated cabs may emerge, which could be dangerous to passengers and drivers
  6. Supply of taxis not responsive to changing demand
Compatibility Assessment

Compatibility Assessment.png

If answered yes, the following questions indicate superior conditions under which the policy is more likely to be appropriate:

  1. Are there many unused taxis driving around the city?
  2. Is there an oversupply of cab stand and street hail taxis?
  3. Is there high pollution and congestion as a result of many taxis?
  4. Are the quality of taxis lower than desired?
  5. Are there many independent taxi drivers, creating regulation burden?


The following questions and considerations are offered for determining how to implement this policy:

  1. How many taxi medallions should be issued?
    1. If attempting to control the quantity of taxis, this number should be less than the current number of non-medallion taxis.
    2. It may be easiest to begin with a relatively small number of taxis and issue additional medallions as needed. However, if a government does not clearly articulate a supply schedule for taxi medallion releases, it may depress any revenues collected, as investors may fear that the government may later allow more entrants into the market, reducing the potential value of their investment.
  2. What process will be used to distribute taxi medallions?
    1. An auction process is often used to attract the highest possible value for medallions.
    2. The value of the medallions will be heavily dictated by the strictness of limitations placed on medallion quantity and the ceiling of the allowable fare rates, both of which will increase the value of an individual medallion.
  3. How will the system be enforced?
    1. Many taxi systems employ what are sometimes referred to as "hack inspectors," whose job is to randomly inspect and police taxi drivers for possession of medallions and compliance with rules.
  4. What will be the penalty for driving a taxi without a medallion?
    1. Penalties may be criminal or civil, including fines, vehicle impoundment, and a potential shutdown of any associated company operations.
  5. How should ride-sharing companies like Uber and Lyft be treated?
  6. How, if at all, should fare prices and other taxi charges be regulated?
    1. Assuming a limited number of taxi medallions, fare limitations may be appropriate to avoid price-gouging and prevent price discrimination (against tourists, e.g.).
    2. Fare rates may be based on set amounts between specified areas (a zone-based approach), or may be based on some combination of distance traveled and time spent in the vehicle. Fare surcharges may be placed in effect at various times.
    3. Fare rates are often calculated by an equipment fare meter, which drivers are required to run in full view of passengers.
  7. Should taxi quality, such as features and proper maintenance, be regulated?
  8. Should there be a distinction made between corporate licenses (owned by a company and leased to taxi drivers) and personal licenses (owned by the drivers themselves)?
  9. Should there be a separate system for dispatch taxis, as opposed to cab stand and street hail taxis?



  • Has adoption of: Limited. Only used in major cities with a lot of traffic, and even then many major cities do not control quantity of taxis. [1]
  • For governance level(s): Local.











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