Montreal, August 25, 2010 – For nearly 60 years, the number of taxis in Quebec has failed to keep pace with population and income growth. Whereas in 1952 there were 4,978 taxis on the island of Montreal, regulations limit this number to 4,445 today. Germain Belzile, director of research at the Montreal Economic Institute, and Vincent Geloso, a master’s student at the London School of Economics, suggest looking in particular toward Ireland and New Zealand in deregulating the taxi industry for the benefit of consumers and of people wishing to enter the industry.
“Restricting the number of taxi owner’s permits, as is currently the case in Quebec, usually results in higher fares and longer waiting times for consumers,” Mr. Belzile notes.
Ireland completely eliminated restrictions on the number of taxis 10 years ago. Waiting times fell dramatically. In Dublin, the capital, the proportion of customers who waited less than 10 minutes to take a taxi rose from 58% in 1997 to 81% in 2008. New Zealand reformed its taxi industry in the late 1980s and made price determination flexible. Price declines ranging from 15% to 25% in constant dollars were subsequently observed in the country’s larger cities.
Supply management of taxi permits does not necessarily serve drivers any better than it serves consumers. Because of a scarcity of permits, obtaining one now costs more than $200,000 in Montreal. As a result, high incomes from regulated fares and a relative abundance of customers are offset by very high costs. The people who benefit the most from this system are owners who got into the market early. They did not have to pay large sums for their permits, but they still benefit from inflated fares and reduced competition.
To mitigate the effects of deregulation (elimination of taxi owner’s permits and greater flexibility in fare schedule), drivers who paid high prices for their permits could be compensated. This is how the Australian government proceeded when it eliminated milk production quotas.
The complete Economic Note prepared by Germain Belzile and Vincent Geloso, titled The Taxi Industry: On the Road to Reform, may be consulted free of charge on the MEI’s website.
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The Montreal Economic Institute (MEI) is an independent, non-partisan, non-profit research and educational organization. Through studies and conferences, the MEI informs public debates in Quebec and Canada by suggesting wealth-generating reforms based on market mechanisms.
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