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July 29, 2011

The Impact of New NYC Taxi Medallions and a New Class of Licenses for Outer-Borough Street Hail Pickups Prepared for the Taxicab Service Association

Ron Miller, Ph.D.

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Table of Contents

I. Introduction.....................................................................................................................1 A. The proposed legislation..................................................................................................1 B. Summary of findings .......................................................................................................1

II. Background.....................................................................................................................2 A. The medallion system......................................................................................................2 B. Advantages of valuable medallions..................................................................................3

III. The Structure of the NYC Taxi System ...........................................................................4 A. Economic organization of the medallion taxis..................................................................5 B. Regulation.......................................................................................................................5

IV. The Impact of Additional Yellow Taxi Medallions ..........................................................6 A. The economics of medallions ..........................................................................................7 B. Estimating the effect of additional medallions on the net income of medallion holders ....9 C. The effect of additional medallions on existing medallion prices ................................... 11

V. The Impact of Hail Privilege Vehicle Permits................................................................ 12 A. Direct impact................................................................................................................. 12 B. Potential impacts from imperfect enforcement of geographic limitations ....................... 14

1. Enforcement of the geographic limits will be challenging ........................................ 15 2. Scenarios to evaluate the impact of imperfect enforcement ...................................... 16

VI. Conclusion .................................................................................................................... 17

APPENDIX .............................................................................................................................. 19

Introduction

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I. Introduction

A. The proposed legislation

The proposed legislation, Assembly bill 8496, contains two basic provisions: the first would create 1,500 new yellow cab medallions to be auctioned by the City of New York, while the second would create a new class of taxi licenses, the “hail privilege vehicle permit,” that would allow permit holders to pick up street hails in the outer boroughs, apart from the airports, and in upper Manhattan.1 The new hail privilege vehicles would be metered, with rates set by the TLC. Though not mandated by the bill, it is expected that they would have a uniform appearance and have GPS and credit card capabilities, though they would be visibly distinct from the familiar yellow medallion cabs. The new class of licenses would be a major change in the structure of the New York City taxi systems, as the medallion cabs have had the sole right to pick up street hails since 1937. This report analyzes the effects of this proposed legislation on the New York taxi industry, with a focus on the effects on medallion holders, drivers and lenders.

B. Summary of findings

One important set of groups among the many people affected by changes in the taxi system consists of medallion owners, their providers of capital and the drivers of the taxis. This report focuses on the effects of the proposed legislation on medallion income, medallion financing and to a lesser extent on drivers’ income. This report analyzes the impact of the proposed legislation on lease rates and thus income to medallion holders. The approach uses standard tools of microeconomic analysis and data concerning the structure and operation of the NYC taxicab industry. The analysis takes as given the other elements of the regulatory environment, importantly including fares and the regulatory cap on taxi lease rates. In that sense, it is an “other things equal” analysis. In several places, not all the data that would ideally be in place to estimate the impact are available. As such, the analysis requires several significant assumptions. The report in some cases examines the potential effect of altering those assumptions, but substantial uncertainty remains. Where possible, we have tried to makes assumptions that go towards reducing the estimated impact. In that sense, the results represent conservative estimates of the likely impact. The main findings are outlined below.

• Valuable medallions have some substantial economic advantages.

• The addition of 1,500 new yellow cab medallions will have a significant negative net impact on holders of existing medallions and on drivers’ incomes. The estimated effect is a 14% decline in net income for medallion holders.

• The new hail privilege vehicle permits will increase competition for outer borough fares, reducing overall yellow cab revenue by a likely 1-2%. This is estimated to cause an additional 6% decline in net income to medallion holders.

1 The legislation is Senate bill 5825.

Background

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• There are substantial challenges to enforcing the restriction that hail privilege vehicles only take street hails in the outer boroughs and upper Manhattan and the proposed legislation does not dedicate additional funds for this enforcement.

• Even with strong but imperfect enforcement of the geographic restrictions on street hails, there could be an additional 5% decline in net income to medallion holders. If there were weak enforcement, the impact on the yellow cab industry would be very large: in one possible scenario the impact of Manhattan hail poaching is estimated to be 60% of medallion net income.

• With perfect enforcement of the geographic restrictions on street hails, the total estimated impact of the proposed legislation on medallion net income is a fall of 20%. In a plausible “strong enforcement” scenario the fall is estimated to be 25%.

• If the regulatory environment is otherwise unchanged, in the long run the prices of medallions will tend to fall in line with the estimated impact on medallion net income.

• Further falls in medallion prices could arise through problems in the credit market for medallions as medallion holders default on loans because of declining income. The ultimate impact is difficult to predict. Sufficiently large falls in medallion income could threaten the existence of the federally-insured institutions that specialize in medallion lending.

• The increased competition for outer borough fares will lead to greater problems with fare refusal.

II. Background

A. The medallion system

The New York City taxi medallion system was created by the Haas Act in 1937. It created a cap on the number of taxis that could pick up street hails in New York City. Some of the original licenses were allowed to lapse, and from 1947 through 1964 there were 11,414 medals in NYC. A small expansion in the 1960s brought the number to 11,787.2 This number remained unchanged until the Giuliani administration, during which 400 new medallions were added, phased over several years.3 In the 2000s, additional medallions, almost half specifically for energy-efficient or handicapped-accessible cabs were auctioned, bringing the total number of medallions to its current level of 13,237. Thus, since 1964, only 1,450 new medallions have been created.

2 The New York City Taxicab Fact Book, Schaller Consulting, March 2006. 3 Originally the plan had been to auction all 400 at once, but in response to complaints from the taxi industry, the

City changed the plan to a series of auctions spread out over several years.

Background

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Taxi medallions have become a valuable asset. In recent auctions, prices for individual medallions, for which the owner must drive, have been over $600,000, while corporate medallions have approached $1,000,000.4 From where does the value of an NYC taxi medallion arise? The Taxi and Limousine Commission (the “TLC”) has provided an extremely clear explanation of the value of medallions:

The medallion is a license from the City that authorizes the operation of a taxicab within the City of New York. Only drivers with a medallion on their vehicle may pick up people on the street anywhere in the city (street hails). [emphasis added]

Not only is a medallion a license to operate a taxicab, but it is also a license to own and operate a small business and can be leased to other operators for a fee. Medallions can be used as a security for loans and may be transferred to another qualified buyer.

This is the explanation that the TLC has provided to prospective bidders for new medallions being auctioned by the City.5 It identifies the three key features that generate the high value of medallions: 1) only the medallion confers the right to pick up street hails in NYC; 2) medallions can be leased or sold; and 3) medallions can be used as security for loans, allowing them to be purchased on credit. While it should be clear to a layperson why these features will make a medallion a valuable asset, the NYC taxi medallion has become a staple example for economics textbooks.6

B. Advantages of valuable medallions

Valuable medallions have several advantages. As the TLC has explained above, a medallion provides a “license to own and operate a small business.” The medallion system effectively creates more than 13,000 such businesses in NYC.

Valuable medallions provide an economic mechanism for strong enforcement of regulations. A medallion owner will not simply walk away from his medallion if faced by fines or other sanctions because he would be losing a highly valuable asset if he were to do so. Since transfers of medallions must pass through the TLC, simply selling the medallion and not paying fines is

4 Price data are from the Taxi and Limousine Commission. There are two classes of medallions: individual and

corporate. An individual medallion must be owner operated for a substantial part of the year while a corporation medallion does not. They are set in a fixed ratio with 40% reserved for individuals. The individual medallions trade at substantially lower prices.

5 The quoted text was taken from http://home2.nyc.gov/html/tlc/medallion/html/background/main.shtml (downloaded July 18, 2011) in relation to the 2008 round of auctions. Similar language appears in the TLC’s bid package for the 2004 auctions.

6 See for example Colander, David C., Microeconomics 5th ed., McGraw-Hill, 2004, pg. 118. The NYC taxi example has appeared in textbooks for decades. It is worth noting that the economic model presented in this text is oversimplified for teaching purposes, as are those in other textbooks. The actual NYC taxi markets have important features, discussed below that make them somewhat more complex to analyze.

The Structure of the NYC Taxi System

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also not an option.7 Enforcement of safety regulations is, of course, especially important. And indeed, taxis in NYC are safer than other vehicles. By one estimate, based on 2004 data, taxis have nearly one third fewer accidents per mile driven than do all vehicles in NYC.8 While it is difficult to compare rigorously the general quality of the NYC taxicab fleet, the prevalence of former New York taxis being used in other major U.S. cities is indicative of the generally high quality of cabs in New York.

Because it is legal to borrow using a medallion as security, medallions provide a reliable source of liquidity for their owners. The ability to use medallions as security puts their purchase within reach of drivers who may be of modest means. Typically it is possible to borrow up to 80 or 90 per cent of the purchase price. Credit is also available to medallion holders for other purposes, such as home purchase or improvement, education or investment in other small businesses. A medallion serves as excellent security for a loan: it cannot be destroyed, it cannot be stolen because transfers have to go through the TLC and for the same reason owners cannot deny they have it if a creditor needs to collect. For these reasons, loans against medallions provide reasonably priced credit for medallion owners.9

III. The Structure of the NYC Taxi System

To begin to analyze the impact of the proposed legislation, this section provides some brief background on the structure of the NYC taxi system. There are currently two broad groups of hired vehicles: the familiar yellow (medallion) taxis that currently are the only vehicles allowed to pick up street hails and the other vehicles regulated by the TLC, which the TLC refers to collectively as For-Hire Vehicles (“FHVs”). The FHVs come in six licensing categories, with the two most relevant for the present analysis being the “black cars” and “community car service” cars, the latter of which are also sometimes referred to as livery cabs.10 For the purpose of this report, we use the term “FHV” loosely, to refer to just the black cars and livery cabs. The black cars are largely used on contract, with vouchers for payment, while the livery cabs are primarily hired by individuals.11 Both types of car have to be associated with a base station. Customers can call the base station which will radio a car to serve the customer. In essence, the

7 The medallion owner is often not the actual driver of the taxi – even for individually owned medallions, many

shifts are generally driven by other drivers. However, the owner of the taxi is responsible for many fines, including some (such as improper use of the cab) that may be the fault of the driver. Thus medallion owners have strong incentives to guarantee that drivers abide by the rules.

8 Taxicab and Livery Crashes in New York City 2004, Schaller Consulting, 2006. More recent data on taxi accident statistics does not appear to be available. The City does not generally release traffic accident statistics, although it has recently announced a plan to do so.

9 Currently, quoted interest rates for loans secured by medallions are running at approximately 50 to 100 basis points above the low end of quoted rates for 30 year mortgages in New York.

10 The other licensing categories are luxury limousines, paratransit services, commuter van services and a small pilot program for group ride vehicles. These other categories provide specialized services that largely do not directly compete with medallion taxis.

11 To register as a black car base, less than 10% or payments can be cash payments direct from the passenger (TLC 2011 Taxi Rulebook, Chapter 59.)

The Structure of the NYC Taxi System

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current system divides between vehicles that can only take street hails (the medallion taxis) and vehicles that can only respond to radio calls (the black cars and livery cabs.)

FHVs far outnumber medallion taxis in New York. While there are just over 13,000 medallion taxis, black cars and livery cabs together number over 30,000, with the livery cabs accounting for approximately 23,000 of those.12

A. Economic organization of the medallion taxis

As noted above, there are two classes of medallion, individual and corporate and the business operation of the two differs. For an individual medallion, the owner must also drive the taxi for one shift a day (with an official shift being twelve hours) for most of the year. The medallion owner, however, may lease out the taxi, along with its medallion, for other times – nights and weekends for example. These lease rates are capped by TLC regulation. The cost of a medallion guarantees that the taxi owner has very strong incentives to keep the taxi in operation as much of the time as possible. Leases may be short term or long term so that some drivers lease for just individual shifts while other may lease a regular shift over much longer periods. There are separate rate caps for individual shifts or for a week of shifts.

Corporate medallions are used by owners of two or more medallions. They may be operated as a fleet or “mini-fleet” in which the corporation owns both the medallions and the taxicabs and then leases the vehicle and the medallion together as a package. As for individual medallions, such leases may be for a single shift or may be longer term arrangements and the leases face the same regulated rate caps as for individual medallions. However, medallions may also be leased by themselves, with the vehicle to be provided by a third party. There are currently 67 medallion leasing agents, which collectively operate a large majority of the corporate medallions.13

B. Regulation

Medallion taxis and FHVs are regulated very differently, with medallion taxis facing a generally heavier regulatory burden. For the economics of the industry, the most important single difference is rate regulation for the medallion taxis. Medallion taxis are, of course, metered with rates fixed by the TLC.

As discussed above, the TLC also sets caps on the rates at which taxi owners and medallion owners can lease their taxis or medallions. The lease rate for a medallion by itself is currently capped at $800 per week for a conventional (non-hybrid) vehicle.14 Discussion with industry participants provides the important information that this lease cap has been binding in recent

12 These figures are based on current licensing data from the TLC. The total number of all FHVs is greater than

38,000. 13 The figures are from TLC licensing data. 14 The lease cap information is from the TLC 2011 Taxi Rulebook, Chapter 58, §21. The lease rate is higher for a

high-fuel efficiency medallion. That class of medallions, created in the 2000s may only be used along with a fuel-efficient vehicle.

The Impact of Additional Yellow Taxi Medallions

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years, which is to say that actual lease rates have generally been at the cap rate. A recent academic study also found that the lease rate cap was binding.15

Medallion taxis must meet a whole range of standards that include GPS equipment, a credit card terminal, a video monitor and a standardized paint job. Medallion taxis must be relatively new vehicles: currently the average age of medallion taxi is approximately two years, while that of livery cabs is nearly seven years.16 Medallion taxi drivers are also not allowed to refuse a fare because of the destination chosen by the customer.17 FHVs do not have meters and fares may be set at will by the operator.18 There is no regulation equivalent to the lease rate caps for medallion taxis.

As noted above, a medallion confers the sole right to pick up street hails. An important part of the regulation of FHVs is that they are not currently allowed to pick up street hails. The penalty is suspension of operation until compliant and requires an appearance at the TLC.19 However, enforcement of this regulation has not generally been intensive. For example, the TLC’s 2009 Annual Report highlights its “Operation Street Hail,” which resulted in 708 summonses in that year. This number should be taken in light of the more than 30,000 FHVs, the fact that this was intended to be a special operation and the familiar sight of black cars cruising for passengers in midtown Manhattan.

IV. The Impact of Additional Yellow Taxi Medallions

In this section we analyze the impact of the first component of the proposed legislation, the issuance of 1,500 additional yellow cab medallions. It is not clear how the 1,500 figure was arrived at. The figure of 400 additional medallions issued under the Giuliani administration was reached on the basis of an environmental impact assessment. To the best of our knowledge, no environmental impact assessment has been conducted for either component of the proposed legislation.

It is a given that increasing the number of yellow cab medallions will decrease the value of existing medallions, other things equal. This is, literally, a textbook example in economics and follows the fundamental principle of economics that increasing the supply of a good will generally decrease its price. The proposed increase in the number of medallions exceeds the sum of all previous increases since 1964. Below, is presented a simple economic model of the price

15 Jackson, C. Kirabo, and Henry S. Schneider. 2011. "Do Social Connections Reduce Moral Hazard? Evidence

from the New York City Taxi Industry." American Economic Journal: Applied Economics, 3(3): 244–67. The authors also note that there does not appear to be any significant prevalence of illegal side agreements that would effectively increase the lease rate above the regulated cap.

16 Calculation from TLC licensing data. 17 The exception is when the taxi has its “off-duty” light on. 18 Base operators must submit a rate schedule to the TLC and cannot charge above that schedule. 19 TLC 2011 Taxi Rulebook, Chapter 59.

The Impact of Additional Yellow Taxi Medallions

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of medallions to help better understand the potential impact of a large expansion in the number of medallions outstanding.20

A. The economics of medallions

A taxi medallion is an asset in the same sense that a bond or a stock is an asset – it gives a right to a stream of income generated over time. As such, it can be valued using standard tools of asset valuation. At least one textbook on valuation uses a simplified version of the NYC taxi medallion market as an example of standard valuation methods.21

The value of an asset is the expected present discounted value of the stream of net income that it provides.22 Generally, we can think of three driving factors in the price of an asset: 1) the expected future cash flow, 2) interest rates and; 3) the riskiness of the future cash flows and the premium associated with that risk. Higher expected future cash flows are associated with higher asset prices – the more money an investment generates, the more it is worth. Higher interest rates are associated with lower values of an asset, other things equal, because a high interest rate indicates a high opportunity cost (and a high financing cost) of investing. Riskier future cash flows are associated with lower asset prices.23 We will focus below on the expected future cash flow. However, it is important to note that one of the reasons for the current high price of medallions is the low interest rate environment.

As noted above, a large majority of corporate medallions are operated by medallion leasing agents. As such, the current cash flow for a corporate medallion is essentially the medallion lease rate.24 The cash flow for individual medallions is more complicated as it includes gas,

20 We considered attempting to estimate statistically the impact of the expansion of the number of medallions using

the historic expansions in the 1990s and 2000s but this turned out to be impractical for several reasons. First, the expansions were announced in several stages as an evolving plan. The price of an asset responds to news about future events – for example the price of the stock of an oil company will rise on the news of the discovery of new oil reserves, before any oil has been pumped. Because news developed over time concerning the plans for additional medallions, there is not a sharp, one time price movement associated with the expansion. Further, the additional medallions were packaged along with fare increases, making it difficult to disentangle the different effects. Finally, it is not clear that there is any reliable source of average price data for medallions. The TLC provides price data for recent years on its web site, but the price data come provided with a very strong disclaimer that some transactions are excluded from the calculated averages and that “…the data may be misleading and may not accurately convey trends in medallion prices.” Individuals familiar with the industry suggest that the TLC may exclude transaction prices that it believes are in some sense “too low.” That is consistent with the warning language that the TLC provides. As such, it is not clear that the TLC medallion price data can be an appropriate basis for statistical analysis, or even for judging overall trends in medallion prices.

21 Damodaran, Aswath, Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, 2nd ed.,Wiley, 2002.

22 The present discounted value is a calculation that accounts for the time-value of money (the fact that income today is more valuable that income in the future) and for the riskiness of the expected future cash flows.

23 Certain kinds of risk may be diversifiable and thus not reflected asset prices, but that is not important for the present discussion.

24 It is not exactly the medallion lease rates because there are also costs that affect the cash flow, including licensing costs, compliance costs and taxes. Gasoline, for example, is not a cost from the point of view of the medallion

The Impact of Additional Yellow Taxi Medallions

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maintenance and insurance costs as well as expected revenue from fares and tips. In principle, it should also be adjusted for the time of the owner-operator.

What are the economic factors that go into the determination of medallion lease rates? If there is excess demand to lease taxis then the lease rate will be the regulated cap rate, currently $800 per week. As noted above, in recent years the price cap on taxi lease rates has been binding. In the absence of the regulatory cap, the lease rate would be higher. The supply of medallions is fixed at a given point in time – we return to the effect of the change in that supply below.

The demand for medallion leases ultimately arises from drivers.25 This demand is increasing in the revenue from operating a taxi and decreasing in the costs, where the costs include the opportunity costs of potential drivers’ time. Most of the costs associated with operating a taxi, including maintenance and gasoline are generally not associated with the number of cabs operating and so can be thought of as fixed when analyzing the impact of new medallions.26 The exception is the opportunity costs of potential drivers’ time. The opportunity costs of drivers’ time represent the best alternative employment available to them. One important determinant of the opportunity costs of drivers’ time is the unemployment rate. With the currently high unemployment rate in NYC, drivers have limited alternatives available, thus decreasing the costs of operating a taxi and increasing the demand for taxi leases. Given the size of the NYC labor market and the fact that taxi driving does not require any specialized skills, it is likely that changes in the number of medallions anywhere near the proposed amount would have a modest effect on the opportunity cost of drivers’ time except in the short run.27 In other words the number of drivers needed to staff 1,500 extra taxis is small relative to the size of the NYC work force, so the impact on effective wages for drivers will be small. Simplifying slightly, the revenue for a driver is the average regulated fare times the average number of fares per shift, plus tips. The fare is set by regulation and it is reasonable to assume that tips are generally in proportion to the average fare. Thus the only important variable in the determination of taxi operator revenue that may be affected by a change in the number of medallions is the average number of fares per shift.

It is not straightforward to estimate the size of the effect of the number of medallions on the average number of fares per shift. However, it is likely that the effect will be quite non-linear in the sense that a large increase in the number of medallions will likely have a larger than proportional impact than a small increase. The reason for this is that there are times of day and places in the city where taxis are close to being unavailable as anyone who has tried to hail a cab

owner. There is no reason to think that the costs associated with leasing a medallion would be substantially affected by a change in the number of medallions.

25 This is something of a simplification, but is appropriate for the present analysis. A medallion leasing agent may lease a medallion on to a third party who then subsequently leases the taxi to an individual driver.

26 The exception would be if the increase in medallions were so great that it resulted in taxis being idled some of the day.

27 This is not to be taken to suggest that driving a taxi is easy, but only that it does not require extensive training. The number of medallion cabs is small relative to the unskilled labor force in NYC moderately large changes in the number of medallion is not likely to have a significant impact on the overall unskilled labor market. In the short run, there may be a significant effect as potential drivers have to be found and have to go through the TLC’s licensing procedure.

The Impact of Additional Yellow Taxi Medallions

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in midtown at 6 pm will know. One study of taxi availability found that there were times and places with virtually no taxi availability even in November 2001, when medallion values were far lower and the industry was generally depressed.28 This is relevant because it means that adding taxis (up to some point) during peak times will have a negligible effect on the average number of fares per taxi since existing cabs are essentially fully utilized. At times of relatively low utilization, the effect on the average number of fares will be approximately proportional to the increase in the number of medallions – at such low-utilization times adding taxis will have little effect on the total number of fares available, but they will be divided among a greater number of cabs. However, for larger changes in the number of medallions there will be more and more times in the day when some cabs are idle so that each additional cab will have a greater revenue depressing effect on existing cabs.

B. Estimating the effect of additional medallions on the net income of medallion holders

The foregoing discussion now provides enough detail to calculate an approximate estimate of the effect on medallion holders of adding 1,500 new medallions.29 The details of the calculation are presented in the Appendix.

The additional medallions amount to 11.3% of the existing medallion pool. Following the discussion above, this leads to an estimate of an approximately 8% reduction in the expected revenue per driver. This calculation does not allow for the effect described above of increasing the fraction of the day with excess cabs cruising because we do not know of publicly available data that would allow me to estimate that figure reliably. Thus the 8% figure understates the expected reduction.

The effect on the equilibrium lease rate will be larger than this.30 This is because while revenue per taxi falls, costs are not reduced. In fact, costs will be likely to rise somewhat because of the increased demand for drivers. However, as discussed above, the effect on required driver incomes is likely to be small except in the short run. We do not know of any reliable data on average driver income and gasoline costs. Anecdotal information is consistent with driver net incomes being somewhat greater than the lease rate. For the present calculation we use a cost share of 55% – that is to say the calculation assumes that driver income plus gasoline costs are about 55% of gross taxi revenue.31 This is supported by one analysis of the industry in 2005.32 That analysis suggests a cost share greater than 60%. Using the 55% figure for driver costs leads to a smaller estimate of the impact of new medallions than using the 60% figure would. With the 28 The New York City Taxicab Fact Book, Schaller Consulting, March 2006, pg. 20. 29 The calculation is approximate because we have not been able to locate detailed cost and driver revenue data that

would allow more precise calculations. 30 The equilibrium lease rate is the lease rate that would arise in equilibrium in the absence of a statutory cap. 31 Technically, it is not the actual cost share that matters, but the cost share that would occur at the equilibrium lease

rate. The actual cost share will vary significantly across drivers because different drivers are able to earn more or less during a shift. The quantity we are looking for, however, is not actual driver income, but average driver reservation wage.

32 The New York City Taxicab Fact Book, Schaller Consulting, March 2006, pp. 35-36.

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55% cost share, the addition of 1,500 medallions is estimated to reduce the equilibrium lease rate by approximately 17%.

The effect on the net income to medallions holders would be even greater than this, ignoring for the moment the cap on lease rates. The logic is the same as above: lease revenues fall with the addition of medallions, but costs do not.33 We estimate that costs account for greater than 40% of lease revenue for medallion holders.34 With this cost estimate, the net effect of the additional medallions on the net revenue of existing medallion holders would be an approximately 28% reduction.35 The cost share is likely to vary substantially across medallion owners because of the different types of medallions and the different business structures used to manage them. As a result, the impact on medallion net income will also vary across medallion holders. The impact analysis here is intended to represent the effect for an average medallion.

The combination of the cost estimates above lead to an overall estimate of 27% of gross taxi revenues becoming net income for medallion holders. For the various reasons mentioned above this is likely an overestimate of the medallion income share. One analysis of 2005 data produced an estimate of a 15% medallion income share.36 If the revenue share were really that low, the effect could be as much as a halving of medallion net income.

There is one important factor mitigating the effect on medallion values: the cap on lease rates. We have not been able to locate a reliable historical data series for lease rates. Individuals in the industry have informed me that rates have only been at the rate caps for the past few years. If lease rates have been at the cap only relatively recently, then the equilibrium lease rate is not likely to be far above the rate cap. If we look at the period since 2006, NYC gross state product has increased by only approximately 14% in real terms so the economy in general has not expanded quickly.37 Fares have been essentially unchanged during this period, apart from an increase in waiting time charges in late 2006. Gasoline prices have risen substantially over the same time period and there have been modest increases in nominal wages. Given those figures it is unlikely that the equilibrium lease rate exceeds the rate cap by much more than 10%. Additionally, if the equilibrium lease rate far exceeded the rate cap, we would expect to see substantial efforts to get around the cap by charging extra costs to drivers. While there have been scattered reports of garages overcharging drivers, there appear to have been no systemic problems. If the equilibrium lease rate is taken to exceed the cap by exactly 10%, this leads to an estimated 14% reduction in the net income of taxi medallion, using the cost estimates above.

33 There could be a small fall in maintenance costs if some drivers choose not to cruise during low-demand periods. 34 As discussed in more detail in the Appendix, the cost share is calculated in two ways, first by direct cost

calculation, using rough cost figures from an academic analysis of the taxi industry, and second by comparing lease rates for medallion only leases to medallion with vehicle leases.

35 This calculation takes the effective tax rate on medallion income to be zero. Taxi medallions can be straight-line depreciated over 15 years. At current medallion prices, the depreciation allowance would completely eliminate taxable corporate income. To the extent that there remains taxable income, the effect of additional medallions on medallion values would be greater than described above.

36 The New York City Taxicab Fact Book, Schaller Consulting, March 2006, pg. 35. 37 Calculated using NYC Gross City Product figure from the NYC Comptroller’s Office through 2009 (the last

available date) and U.S. GDP growth from 2009 to the present.

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The effect could be substantially larger if costs are higher than assumed above. Using the 15% revenue share figures from the 2005 study cited above, the impact on medallion net income would be a reduction of more than 30%.

C. The effect of additional medallions on existing medallion prices

The effect of adding 1,500 new medallions on medallion prices is more difficult to evaluate. The current price of an asset depends not only on the current net income, but on the expected stream of income in the future. This depends on a large number of variables. In particular, it will depend on expectations concerning future regulatory policy including future fare increases, changes to the lease rate cap and further additions to the pool of medallions. In the past, expansions in the number of medallions have largely been combined with fare increases and other regulatory changes so that the value of medallions has continued to increase. Market participants may, for instance, believe that the regulatory regime will guarantee continuing medallion price increases in the future, in which case there would be little short term impact on the price of medallions.

Indeed, as the present legislation has progressed, the price of medallions appears to have been increasing, to the extent that the TLC average medallion price data accurately represent price trends. This may well be the result of expectations as described above, that some regulatory compromise will eventually be reached, as been the case in the past, so that medallion owners will not be harmed. It could also be the result of expectations that the legislation will not ultimately be enacted, possibly due to anticipated legal challenges on several fronts. Because of the range of possible expectations that could be reflected in the price increase, there is no way to infer the potential medallion income impact of the additional medallions from the price movements of medallions in recent months.

If market participants believe that the decrease in net medallion income resulting from the expansion of the medallion pool will be permanent, then medallion prices would be expected to fall in the same proportion as the fall in net medallion income, so a fall of 14% or possibly much greater.38 If indeed the present regulatory regime were otherwise unchanged, the fall in medallion income would likely persist, relative to the incomes that would otherwise have been achieved.39 Whatever expectation may currently be concerning the evolution of the regulatory regime, continued depressed medallion income will eventually lead to a revision of those expectations and a substantial fall in medallion prices.

The present high prices of medallions are partly due to favorable overall economic conditions for the medallion holders. The two most important of these are current low interest rates, as discussed above, and the high unemployment rate. The high unemployment rate makes it easy for medallion holders to find drivers. These favorable circumstances for medallion holders are

38 The proportionality of the asset price to the permanent net income arises directly from the basic asset pricing

principles discussed above. There will be some effect of taxes after the fifteen-year period over which a medallion can be depreciated for tax purposes. This will make the drop in permanent medallion income slightly smaller than the fall calculated above, but at reasonable discount rates, this effect will be small.

39 Lease rates would be expected to rise again eventually with overall economic growth in New York.

The Impact of Hail Privilege Vehicle Permits

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unlikely to persist. This could lead to a situation where the actual fall in medallion prices is much larger than just the effect arising from the present legislation.

The reduction in medallion income may not be the only effect on medallion prices. Many and probably most medallions are financed with credit. A substantial industry exists to finance the purchase of medallions. If there is a large fall in medallion income, there could be a substantial number of defaults on loans that have financed medallion purchases. Some medallions are financed using balloon loans that borrowers will need to roll over. If medallion prices see a substantial decline, such borrowers may not be able to roll over the full value of their loan because of the decline in the value of the medallion that is used as collateral. These factors could lead to further declines in the price of medallions following the same pattern that we have seen following the national collapse in housing prices and the associated credit crisis. Medallions of defaulting borrowers would have to be placed on the market by creditors, as would the medallions of borrowers unable to roll over balloon loans. The dumping of these medallions on the market would be likely to further depress prices. Also, as much of the financing of medallion purchases come from firms that are specialized in medallion lending, a substantial default rate among existing borrowers could lead to constraints on credit availability and higher required down payments as such specialized lenders attempt to repair their balance sheets. As in the aftermath of the national housing crisis, constraints on lending could lead to further price declines as those willing to pay higher prices may find it impossible to obtain financing to do so.

V. The Impact of Hail Privilege Vehicle Permits

A. Direct impact

Apart from the increase in the number of medallions, the other main component of the proposed legislation is the introduction of hail privilege vehicle permits. As discussed in the introduction, this new class of permits would allow drivers to pick up street hails in the outer boroughs, apart from the airports, and in upper Manhattan.

The legislation proposes creating up to 30,000 such licenses, with a fee of $1,500 for a three-year, automatically renewable license. The license would be for a vehicle, not for a driver.

The 30,000 limit on licenses appears to have been chosen so that there would be no effective limit on the number of hail privilege vehicles at least in the short term. The 30,000 licenses would be enough to allow virtually all of the existing black cars and community car service vehicles to be converted to the new taxi class.

It is not clear how much uptake there would be on the new licenses. There would be three potential sources of demand for the licenses: existing black cars, existing community car service vehicles and newly licensed vehicles. The primary source of demand is likely to be the existing community car service vehicles. The existing black cars depend largely on corporate and institutional accounts and many of their clients may not want to be picked up by vehicles that look like taxis. It is hard to imagine executives of New York banks hiring a car service with vehicles that looks like the outer borough version of a yellow cab.

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The new licenses may be attractive to a substantial proportion of the more than 20,000 community car service vehicles and appear to be targeted at this group. Though we do not attempt to estimate what fraction will convert to hail permit vehicles a brief discussion of the incentives of the car services follows. The new licenses will be in addition to an existing identity as a TLC registered FHV.40 Thus, current community car service vehicles would be able to continue picking up radio calls in addition to picking up street hails in the boroughs. The hail privilege licensing costs will be relatively low, at $500 per year for one vehicle. However, there are likely to be quite substantial additional costs associated with the new hail privileges. It is expected that the new hail privilege vehicles would be much like a yellow cab: they would have a roof light, a meter, and a technology package including GPS and a credit card terminal. The new status may also come with increased insurance costs on account of greater cruising time, but that will be determined in the insurance market. The additional costs are likely to be substantially greater than the up-front license costs, running into at least several thousand dollars. One industry participant provided a rough estimate of $7,000. In any case these costs will be substantial given the relatively low entry costs for community car services. As noted above, the average age of a car service vehicle is about seven years. A low-mileage 2009 Lincoln Town Car, the most popular model for car services, can be purchased in New York for $25,000 or less. As such, the investment involved in upgrading a car service vehicle to be a hail privilege vehicle will be substantial relative to the basic vehicle cost.

Given the relatively high costs of conversion to a hail privilege vehicle and the low likelihood that the 30,000 licenses will all be quickly taken, many vehicle owners may take a wait-and-see attitude. We do not attempt to estimate how many hail privilege vehicles will register as there is a great deal of uncertainty concerning how profitable they will be. Profitability will also depend on the fares and the regulatory structure that is ultimately put in place for the hail privilege vehicles. Proposed fares have not been announced.

In order to evaluate the impact of the introduction of hail privilege vehicles on the yellow taxi industry, we need to examine first the importance of outer borough pickups to yellow cabs. The TLC has stated that 97.5% of yellow cab pickups are in Manhattan or the airports, a figure that has been widely repeated in the popular press. First, this figure apparently includes upper Manhattan and so understates the importance to the yellow cabs of the street hails that would be captured by the hail privilege vehicles.41 Second, this figure understates the importance of outer borough trips because it is expressed in terms of the number of rides, not the value of those rides. Outer borough trips may generally be longer than Manhattan trips. Given these two factors, the correct figure is likely closer to 95%.

If the hail privilege vehicle program were successful, it is likely that yellow cab hails in the outer boroughs would drop by a very large fraction. The stated purpose of the legislation is to increase the availability of street hails in the boroughs. Given the already low fraction of outer-borough hails for yellow cabs, it is clear that yellow cab drivers do not generally find it profitable to

40 Section 3 of the bill specifies that owners of FHVs will be the only ones eligible to apply for the new permits. As

such, the new licenses do not create a separate category of taxis, or of FHVs, but allow additional privileges to existing FHVs.

41 Since we do not know how the TLC figure was arrived at, we cannot add back in the upper Manhattan fares.

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cruise the outer boroughs. Creating a large number of hail privilege vehicles will make it even more unattractive by increasing competition for pickups.42 However, the loss in revenue from outer borough trips will be partially made up by moving some cruising to Manhattan. While it is difficult to evaluate all the different variables involved (take up rate for hail privilege permits, change in locations of cruising, additional Manhattan revenue) it seems reasonable to expect a net reduction in yellow cab revenue of 1-2%. Without the addition of 1,500 medallions, this would be unlikely to have any effect on medallion holders, because the equilibrium lease rate would probably not fall below the lease cap. Instead, the revenue reduction would come directly from driver income. If, however, this effect were on top of adding the 1,500 medallions it could have a moderate effect on medallion net income. Using the same analytic method described above for analyzing the addition of medallions, and using a 1.5% net reduction in yellow cab revenue, the result would be an additional 6% fall in medallion net income, for a total fall in net income of 20%.

Another effect of the introduction of hail privilege permits will be an increase in the number of fare refusals by yellow cabs. Yellow cabs are not permitted to refuse fares from Manhattan to the outer boroughs, but sometimes do. TLC Commissioner, David Yassky, has publicly highlighted fare refusal as a problem, with one TLC study finding a 50% refusal rate.43 The increased competition for outer-borough hails that will be created by the introduction of the hail privilege permits will tilt the economic incentives of yellow cab drivers even more towards refusal. The key reason for driver refusals is that drivers worry that they may have to “deadhead,” take a long empty ride back to Manhattan, on account of the difficulty in finding passengers in the outer boroughs. Increasing that difficulty by adding hail privilege vehicles will make it even more costly for drivers to accept fares to the outer boroughs.

B. Potential impacts from imperfect enforcement of geographic limitations

There are serious questions about the enforceability of the geographic restrictions on the hail privilege permits. If these limits prove to be difficult to enforce, there could be large negative impacts on yellow cab medallion holders and drivers. This section of the report discusses the potential difficulties of enforcement and evaluates the impact of some scenarios involving imperfect enforcement.

42 Of course, illegal street pickups by livery cabs are already common. However, standardized fares, credit card

payment and likely greater perceived safety will make passengers more likely to accept rides in the new hail privilege vehicles. On the side of the livery drivers, at least some drivers are surely currently deterred from picking up street hails because of its illegality. Thus the net effect would be an increase in competition for street hails in the outer boroughs. Also, as noted above, the stated purpose of the legislation is to increase the number of street hails in the outer boroughs. If it fails to increase competition for outer-borough street hails it would be failing its own stated goal.

43 News article, “'Secret Shoppers' Catch Cabbies Refusing Fares,” Mach 9, 2011: http://www.dnainfo.com/20110309/manhattan/secret-shoppers-catch-cabbies-refusing-fares

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1. Enforcement of the geographic limits will be challenging

The TLC will have at least two possible methods for enforcing the geographic restrictions on hail privilege permit vehicles: direct observation of hail pickups and the use of the GPS units that will be installed in the hail privilege vehicles. Enforcement using direct observation is difficult and labor intensive – someone actually has to observe the pickup and report it. Notably, the proposed legislation contains no extra funding for enforcement. Given that there are already many illegal pickups in Manhattan, it is clear that it is difficult to use direct observation for enforcement.

The GPS units in hail privilege vehicles may offer a new enforcement technology. However, there will be substantial hurdles to overcome. It would be straightforward to use the GPS technology for enforcement if the hail privilege vehicles were simply banned from all of Manhattan apart from upper Manhattan. But this is not the plan. The legislation proposes hail permits for existing FHVs. This means that a hail privilege vehicle will be able to pick up radio calls all over Manhattan, just as car services and black cars do now. As such, they will have every right to be picking up fares in Manhattan, just not street hails. It is not clear how it would be possible to distinguish between a radio pickup and a street hail using the GPS system.44 One possible method would be to monitor the amount of time vehicles spend in Manhattan and investigate those that spent an unusual amount of time there. Then investigators would need some evidence that the vehicle was not picking up radio calls. Investigators might require that drivers (or base stations) provide maintain a list of client phone numbers. However, a driver could simply collect phone numbers from passengers picked up on the street to avoid that form of enforcement. The TLC could also require that base stations provide phone records to verify that the calls were real. If this were the case, the ubiquity of cell phones could create another alternative – the driver could simply ask passengers to call the base station from the car to create the required record.

Indeed, cell phones could substantially blur the distinction between street hails and radio calls. It is not even clear that having a passenger call a base station from the curb or from the taxi would be illegal. Of course, livery cabs could be doing just that already. However, metered cars that look like proper taxis would present a very difference appearance to potential passengers as compared to an unmarked, unmetered livery cab. There are likely many riders who would be willing to get in a formal metered cab on the street.

Further, drivers of hail privilege vehicles will have a strong incentive to cruise Manhattan, if they are able to do so. Indeed, they will have the virtually the same economic incentives as the yellow cab drivers. The TLC’s 97.5% figure for yellow cab pickups in Manhattan and the airports shows how strong the economic incentives are for yellow cabs to cruise Manhattan, as does the continuing problem with fare refusal. The economic incentives for hail privilege vehicles will be similar, since they are doing exactly the same thing while cruising; although some street hail passengers may be unwilling to use them because of the illegality involved.

44 In principle it would be possible to require that the meter be used exclusively for street hails, though that would

likely be unpopular with both drivers and customers. Of course, the hail permit vehicles could still (illegally) pick up street hails and not turn on the meter.

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2. Scenarios to evaluate the impact of imperfect enforcement

Because of uncertainty concerning the number of hail privilege permits that will be taken up and concerning the degree to which enforcement is possible or effective, we do not attempt to produce a “most likely case” estimate of the impact of illegal Manhattan street hails. Instead, we evaluate several different scenarios to evaluate how sever the potential impact may be. We consider three possible scenarios to examine a range of possible outcomes. The scenarios are as follows:

• Scenario 1: 5,000 hail privilege vehicles in operation, average 5% of time spent cruising Manhattan

• Scenario 2: 10,000 hail privilege vehicles in operation, average 10% of time spent cruising Manhattan

• Scenario 3: 20,000 hail privilege vehicles in operation, average 20% of time spent cruising Manhattan

The central figure of 10,000 hail privilege vehicles was chosen to match a figure that has been used by the TLC in presentations on the proposed legislation. It appears to represent the number of vehicles estimated by the TLC to be needed to match outer borough demand. The 5%-20% range for time spent in Manhattan is simply chosen to examine a range of possible outcomes depending on the effectiveness of enforcement.

For the impact figures cited below, the only quantity that matters is the product of the number of hail privilege vehicles and the fraction of time spent cruising Manhattan. This sets up a sort of “yellow cab equivalent,” so that the impact under Scenario 1 is like adding 250 yellow cabs, while that of Scenario 3 is like adding 4,000 yellow cabs. Given this yellow cab equivalent figure, the analysis is identical to that in the section of the report dealing with the issuance of new taxi medallions.

Scenario 1 is a plausible “strong-enforcement” scenario. It amounts to case in which the hail privilege vehicles poach less than 2% of hails. In this scenario the effect is moderate. Without the addition of the 1,500 new medallions, we estimate that there would be no effect on medallion net income because it would not reduce the equilibrium lease rate beneath the cap. However, in combination with the 1,500 new regular medallions, we estimate this would lead to an additional 5% decline in medallion net income. Also including the 1.5% revenue loss for outer borough hails discussed above, leads to an estimated total net income loss of 25%. Again, if the share of total taxi revenue going to medallion holders is lower than has been assumed in the foregoing analysis, then the decline in medallion net income would be greater, possibly much greater.

In Scenario 2, the impact on medallion net income, without the addition of the new medallions is estimated to be a 5% decline. In combination with the new medallions, the impact would be an additional 17% drop in medallion net income. The total estimated impact on medallion net income, including the loss in outer-borough revenues, is 37%.

Conclusion

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In Scenario 3, the impact on medallion net income, without the addition of the new medallions is estimated to be a 54% decline. In combination with the new medallions, the impact would be an additional 58% drop in medallion net income. The total estimated impact on medallion net income, including the loss in outer-borough revenues, is 78%.

These figures indicate that if enforcement were weak, there would be huge impacts on medallion holders, especially in combination with the proposed additional 1,500 medallions. There would be substantial revenue losses for drivers as well. The fact that weak enforcement will lead to a large impact on yellow cabs should be self-evident. With just over 13,000 yellow cabs, adding 15,000 or more cars spending a significant amount of time cruising Manhattan would have to have an enormous effect on the industry. Even with strong enforcement, as in Scenario 1, the cumulative impact of loss of outer-borough revenue and a small amount of poaching of Manhattan business will lead to a significant 11% impact on medallion net income when added on top of the new medallions.

In terms of the effects on medallion value, the same issues hold with respect to the new hail privilege permits as were discussed with respect to the new medallions. In short, what will happen to the price of medallions in the short term will depend on the expectations of market participants regarding future regulatory action. However, in the longer run, if the hail privilege permits are issued while retained the present regulatory regime, eventually medallion prices will reflect the substantial losses in net medallion income. If enforcement of the geographic restrictions on hail privilege vehicles is weak, medallion prices will likely fall to a fraction of their current value.

VI. Conclusion

The estimated total impact of the present legislation for medallion holders is a 20% fall in net income, even with perfect enforcement of the geographic constraints on the new hail privilege vehicles. With strong, but imperfect enforcement (Scenario 1 as describe above), the estimated net income loss is 25%. If enforcement is weak, then the impact on yellow cabs could be huge. There does not appear to be any clear plan for how the rules are to be enforced and the proposed legislation provides no additional funding for enforcement.

The impact on medallion values must mirror the impact on medallion net income in the long run. Without changes in the regulatory regime that will mean substantial declines in medallion prices. Those drops may lead to problems with the financing of medallions that could lead to still further declines.

While the focus of this report had been on the impacts on medallion holders, there will be other significant impacts as well. Based on the analysis above, the first hit to yellow cab revenue will go to the drivers. With lease rates at their cap, all initial falls in per cab revenue come out of driver income. With substantial falls to the value of medallions, the federally-insured lenders who provide credit to medallion buyers and owners will be substantially at risk. Many medallion owners rely on the income from their medallions to make their monthly payments. If there are large falls in the net income from medallions, as there would be if enforcement of the geographic

Conclusion

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restrictions on hail privilege vehicles were weak, the stability of the medallion lenders could be at risk.

Although it is beyond the scope of this report, there will be environmental impacts as well. These environmental impacts have not yet been assessed.

APPENDIX

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APPENDIX

This appendix provides additional detail concerning the estimation of the impact of additional medallions on the net income to medallion owners. The description is based on the 1,500 additional medallions specified in the first part of the proposed legislation, but the analysis is identical for the analysis of imperfect enforcement of the geographic restrictions on hail privilege vehicles.

The first step is to go from the additional medallions to the effect on per cab revenue. Since the regulated fare is taken to be constant, this requires only estimating the effect on the average number of fares. As described in the main text, there are congested times of day when adding taxis will have (approximately) no effect on the revenue of existing taxis.45 There are also slack times when it is easy to find a taxi. Adding taxis at that time will have (approximately) no effect on the total number of fares available. To create a simple model of revenue we assume that the day is divided between these two extremes. In the congested portion of the day, adding additional taxis has no effect on the average revenue of existing cabs. In the slack portion of the day, we assume that the total number of fares is fixed and that adding additional taxis simply divides the number of available fares by a larger number of taxis.46 We have taken the congested period to be 25% of the day. This is based on general knowledge of taxi availability and an earlier study of taxi availability.47 Based on a full day, most of the time and in most of Manhattan, it is relatively easy to find a taxi. In some particular times and places it can be very difficult, such as midtown at evening rush hour. We are taking approximately one quarter of the day to be congested in the sense that any additional cabs would be immediately soaked up by passengers who would otherwise walk or take the subway given the low chance of finding a cab.48 Using the 1,500 additional medallions, this model of taxi demand leads to an estimate of an 8% fall in per taxi revenue.

The next step is estimation of the equilibrium lease rate. We take the required income per shift for drivers to be exogenous. This is the equivalent to assuming that the market for the services of taxi drivers is small relative to the pool of unskilled and semi-skilled labor in New York City. As noted in the main text, allowing there to be positive elasticity in the supply for taxi drivers would increase the estimates of the impact of additional medallions by increasing costs for medallion owners. As noted in the text, we have not been able to locate a good source of data on the per shift net income of drivers. Moreover, the figure we need is actually the share in revenue when lease rates are at equilibrium level, not at the capped rate. Anecdotal evidence from media reports, the Taxicab Fact Book, cited above, and at least one TLC publication agree that driver 45 We use the word “time” as a way of simplifying the presentation. In reality it is a combination of time and place

that is either congested or slack. 46 While this is a simplifying assumption, it is more of a choice of parameterization than a substantive modelling

assumption. In reality, there are clearly in-between times when shorter waits to hail a cab would lead to more people taking cabs. But these in-between times are mathematically captured by combining the extreme cases.

47 The New York City Taxicab Fact Book, Schaller Consulting, March 2006, pp. 19-21. 48 Implicitly, we take it to be one quarter of the revenue-weighted day.

APPENDIX

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net income is, on average, greater than the lease rate and has been for some years.49 Conservatively, we have taken the total cost (driver cost and gas cost combined) to be 55% of total taxi revenue at the equilibrium lease rate. This cost estimate is discussed further in the main text. Because of the difficulty in obtaining reliable data, we have used something more like a lower bound of the cost share than rather than a best estimate of the cost share in revenue.

Given this cost estimate, we normalize initial revenue to one giving an initial equilibrium lease rate of 0.45. We then reduce the revenue by the 8% calculated above and subtract 0.55 in costs to get the new equilibrium lease rate.

As noted in the text we use a 10% estimate of the excess of the current equilibrium lease rate over the lease rate cap. So for calculating the effect with the lease cap in place, we start with revenue normalized to 1.1 instead of to 1, but subtract the same 0.55 in costs.

The final step is estimating the fraction of lease payments that go to medallion holders. We did this in two ways. First, we estimated revenues using the weekly lease rate cap. Then we used estimates of costs from an academic paper on the taxi industry plus $7,000 per year in depreciated vehicle costs given the approximate 4 year lifespan of an NYC cab and plus costs for workers compensation expenses.50 The costs listed in the academic paper are clearly not exhaustive and so should be considered a low estimate of total costs. The cost estimates were inflated to 2011 dollars. This leads to an estimate of costs representing approximately 40% of lease revenue. An alternate check is to compare the lease rate for a car and medallion to the lease rate for just a medallion. Since both sorts of leases are observed in the industry, they should generate approximately the same net income. If one sort of lease generated substantially more net income, we would expect to only see that sort of lease. Using the weekly lease rate for a car and medallion as comparison, we find that the medallion-only lease rate is approximately 40% less. Using the weekly lease rate reached by using single shift leases would lead to a higher estimate of costs. Thus we have two estimates of vehicle costs at around 40% of lease revenue and one higher estimate. We have chosen the 40% figure, which leads to a smaller estimate of the impact of additional medallions on existing medallion owners.

For the final stage of the calculation, we normalize the lease rate to be one. We hold costs constant at 0.4. We then move the lease rate to value calculated above and recalculate medallion net income. As discussed in the body of the text, we do not take taxes into account because of the high depreciation allowance for medallions.

49 07 Taxi Roads Forward, Design Trust for Public Space/TLC, December 2007. This publication gives take home

income as $150 to $250 per shift compared to a lease rate of $105-$130 per shift. Those figures would imply a cost share above 60%. 2007 data is valuable as the equilibrium lease rate was probably closer to the cap at that time but the take home income still exceeded the lease rate.

50 Jackson, C. Kirabo, and Henry S. Schneider. 2011. "Do Social Connections Reduce Moral Hazard? Evidence from the New York City Taxi Industry." American Economic Journal: Applied Economics, 3(3): 244–67.

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