Lima: Where Gas Is 35% More Expensive And Taxi Rides Are 80% Cheaper
No, it's not a joke and taxi rides are sometimes even cheaper. What explains the puzzle? Answer: The existence of low barriers to entry in the market for taxis.
Unfortunate high levels of unemployment have led thousands of car owners in Peru to try to make some money by placing a "Taxi" sticker on their windshields. This is pretty much the only barrier to entry faced by car owners. It's amazing how competition can lead to such low prices.
This might sound like heaven for consumers, however that's not necessarily the case for they end up bearing non-monetary costs due to the existence of negative externalities. Some of the non-monetary costs I have identified are:
- Increased levels of air and noise pollution.
- Low quality of service.
- Increased levels of traffic.
The last of these -traffic- seems to have reached such a high level in certain parts of the city that is destroying the provision of the service itself. I had never been denied the service until yesterday: the first two cabs simply wouldn't want to take me to the downtown because 'there is just to much traffic over there'. What I find puzzling is that they preferred not to provide the service instead of adjusting the rate (there are no taximeters here, the rate is agreed at the time of boarding the car).
This seems to be a case in which governmental intervention is desirable. As a consumer of the service however, I must say that I prefer the free market case to the ridiculously high rates that are charged in Charlottesville.
posted by bcj @ 9:55 AM
2 comments
2 Comments:
I agree that the use of taxis create external costs not captured by the market. But I suspect that regulating the taxi cab industry is not the best solution. Instead, a congestion tax on all vehicles would directly address the externalities here. And it's not so hard to do. In Singapore, for example, cars are required to carry meters linked to the driver's bank account. Whenever the driver passes certain high-traffic areas at certain times, money is automatically deducted. The bigger problem I see is with political will. On Long Island, for example, we have the biggest parking lot in the U.S. called the Long Island Expressway. A candidate for governor proposed a congestion tax to decrease traffic a few weeks ago and has spent all his time since then backing away from it due to the uproar.
What do you suggest? To create OSITAXI?
Enrique Delgado
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