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How should a city administration respond to the shared cab phenomenon?

Shomik Mehndiratta's picture
Follow the authors on Twitter: @shomik_raj and @cataochoa
 
Smartphone apps are bringing massive changes to the taxi industry in ways that urban transport has not seen in a long while. From the US to China and Latin America (Bogota, Mexico), taxi alternative services have attained an impressive level of penetration in a short amount of time, often with great controversy. Indeed, many cities across the world are struggling with what to make of these services and how to regulate them.

While we have not been significantly involved with such services thus far, a recently appointed mobility secretary in a big Latin American city has asked us for support on developing an approach to the shared taxi industry, as part of a "Smart Mobility" strategy for the city. In that context, we wanted to start a conversation on optimal strategies for cities to be able to welcome and foster such innovations, while still capitalizing on the opportunity to create value for its citizens.

 
The popularity and rapid penetration of taxi-matching services send a strong message about the value they are creating for users
 
  • Safe, timely and reliable services. Getting safe, timely, reliable taxi service should be easier than it is in many cities across the world. Service is often difficult and patchy outside the center and outside peak times. In Latin American cities, personal security has also been a significant problem, especially due to kidnappings by fake taxi drivers. Many city administrations have yet to find ways to guarantee that a taxi flagged on the street is legal, safe and reliable. In this environment, companies like EasyTaxi or MyCab play a valuable role thanks to a thorough driver verification process. We had a chance to interact with a MyCab driver in Mexico, who told us about the extensive verification process he had to undergo, including investigators visiting his house and neighborhood, and verifying he had a formal bank account.
  • Fare structure and services that respond to demand. Recent innovations in the industry open the possibility for users to share rides and split fares under certain circumstances. This means taxi-alternative services could potentially operate as on-demand public transport in thin markets and in off-peak settings, which could play an important role in serving the bottom of the pyramid.
  • Reputation as the new quality regulator. Most services and businesses with an online presence can now be easily reviewed and graded by users. For taxi-alternative services, online reputation (along with word of mouth?) could therefore become a powerful quality assurance tool that does not require any government intervention.
 
What is the city government’s interest in the shared cab industry? How should it respond to the phenomenon?

Government has an interest in regulating three important dimensions of the “traditional” taxi industry:
 
  • Ensuring the safety, security and well-being of passengers, especially by screening potential drivers.
  • Managing supply by restricting the number of permits to operate a taxicab (or “medallions”). When taxi fares and demand for services are high enough, and the number of available licenses is limited, taxi medallions can have significant economic value, some of it paid to the government as a fee. Limiting the number of taxis – and empty kilometers driven — can also help manage congestion and local pollution.
  • Enforcing fare transparency (some would say in setting fares as well).
As far as taxi-alternative services are concerned, we mentioned earlier that sharing-economy entrepreneurs appear to be doing a good job at screening drivers/cars for passenger security, and provide transparency on fares. Therefore, it  seems that the key remaining public interest has to do with congestion, i.e. ensuring that new taxis are paying the external costs of the congestion they are causing. Instead, in most settings, the public debate is being driven by the interests of the ‘traditional’ taxi industry - whose grievances are certainly legitimate since they have paid a medallion fee in exchange for an expectation of exclusivity. However, from a transport planner’s perspective this is really is an issue of one-time contracts that should not distract us from thinking about the long-term public interest.

Given the public interest in managing congestion, perhaps the most important public intervention with taxi-matching services such as Uber and MyCab would be to require service providers to share with government detailed real-time data on speeds and rides:
 
  • Firstly, such data are extremely valuable in themselves. Getting speed data for the road system is essential for transport planners as well as for road users who rely on journey planners and other navigation systems. But those data are not easy for government to collect.
  • Secondly, it would allow government to track and tax empty kilometers driven by Uber or Mycab taxis, which generate substantial externalities in the city such as increased emissions and congestion.
  • Thirdly, real-time data would allow city governments to manage congestion more efficiently by charging taxis a fee for using public ways at certain times and in certain locations, depending on the congestion they cause. 
Work will need to be done to define efficient and socially acceptable fee schedules – without compromising the ability of taxi-matching services to price according to demand, which is paramount to their business model innovation. But in the long run, such fees could have the potential to generate revenue for the government to replace the revenue lost by medallion fees and, more importantly, provide the right incentives for transparent, competitive and sustainable innovation.

What are your thoughts?  What have we missed or not considered?
 

Comments

Submitted by Elisabeth Goller on

This is a very nice article as usual. I agree with you for the developed world. However, in most countries we work, congestion management as suggested is still far away. In addition, while the traditional taxi industry, which provides a living for many relatively poor people, may not be the transport planners' immediate concern, it is definitively an issue, city governments need to tackle.

Submitted by Shomik on

Lies, Thanks for your comment. No disagreement that many of our clients, or indeed even most cities in the global North are not handling congestion management as yet in a systematic manner. However, shared taxis and network-based services such as Uber and Easycab already have a big presence in many of the cities the Bank works in – including all major cities in Latin America and China. Government is also responding to these services and we would suggest that the framework we lay out could help them think through their decisions in such a context.

Submitted by Chen Yang on

So glad to see discussion on this issue! Thanks Shomik and Cata!
Two points I would like to contribute:
1. Safety concern is not limited to driver identification (there has to be some measures to insure the actual driver or vehicle is the one which has been verified by authority), but also: (a) the unsafe use of cellphone (apps) while driving by taxi drivers (this has been a huge concern as drivers are competing fiercely to get passengers as evidenced by the "taxi-matching apps combat" in China earlier this year); (b) passenger privacy (some passengers got text harrassment after the trip); and (c) oen of the same safety concerns for ridesharing: the identify of the other passengers who share rides.
2. The disadvantaged group will be: (a) those who do not use cellphone especially smart phones (the old and the poor); (b) those who live in remote areas and cannot afford the "surplus price" (that's even more so if a "empty vehicle tax" is added); and (c) those who need services during peak hour or bad weather. These disadvantaged people will face more "refusal to service" as the drivers now have more choice (with more information) to serve those who can offer a higher price. For example, there is evidence that after the popularity of taxi-matching apps it is much more difficult to get a taxi by waving at the street. Therefore some other mechanism needs to be in place to compensate the loss of service of these people.

Submitted by Shomik on

Yang. Thanks for your comments. You bring up important concerns – the issues you list re privacy and safety are important considerations for a new regulatory regime. Your point with respect to the people who don’t use cellphones is also well taken though the evidence suggests that smartphone penetration is growing fast, especially among the middle class who would be using taxis. Additionally, this is one of the gaps that one would hope public transport would fill.

Submitted by Martin Humphreys on

Interesting blog...but we need to be a little careful here in what we advocate. I personally see little economic logic in the supply restrictions in many American cities - the price of a medallian in NY for instance, hit USD766,000 in 2009 - purely as a result of a supply constraint.

Denver, Colorado, deregulated taxis in 1995 and within four years, a startup taxi company employed more than one hundred drivers. In Cincinnati, Ohio, deregulation led to an additional 237 cabs on the streets. And in Indianapolis, Indiana, 158 new cabs entered the market. These new taxis offer economic opportunity (often to those with few job skills), they bring service to areas other companies often neglect, and they usually reduce rates to passengers due to competition. With all of these practical benefits, who could possibly be opposed to freedom in the taxi industry? The answer is: The taxi industry.

Taxi regulations make it almost impossible to start a taxi company. Those who have secured the necessary permits operate a regulated monopoly. They are protected from competition. They are not guided by the demands of the market, but by the demands of government officials.

Uber and other firms offer a service that is not dissimilar to that offered by minicabs in the United Kingdom - whilst offering advantages that reduce many of the risks cited by Taxicabs to jsutify keeping their monopoly. London cabs may be 'claimed' as one of the best services in the world, but they are also one of the most expensive. The regulatory structure works reasonabley well in those cities, and Uber and similar schemes, offer a way to improve that.

On the issue of charging taxies for the road space they consume - in most road pricing schemes, shared use and public service vehicles, and taxies usually fall into these categories are exempt. The main problem is the car, with a single occupant...charging their use, and holding down the cost of taxies and minicabs, seems like a more logical approach.

Submitted by Shomik on

Martin, thanks for your comments. We do not have any fundamental disagreement with what you say. Indeed, the framework we lay out precisely tries to move from the kinds of regulatory frameworks you describe to one that is based on market –based competition, no artificial barriers to entry and regulation of well defined elements of public interest.
With respect to the issue of existing congestion charging schemes excluding cabs – it is not clear to us what any a priori reason to exclude cabs from a pricing regime would be. Indeed, as we move into a world of autonomous cars and mobility-on-demand some suspect the already blurry line between private cars and shared services such as Uber will become even more blurred. But we do agree that any pricing regime should not be limited to cabs – that said, the nature of the emerging shared taxi services and the data they collect may offer a nice bite sized vision of what the world of tomorrow could look like to an urban planner.

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