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Technology, Taxi Medallions and the Ancien Régime

It is common to talk about the ways that technology is disrupting governments, and everything else for that matter. But there is one timely topic that illustrates how technology could help governments more efficiently capture value for themselves.

Specifically, taxi medallions, which give their owners the right to operate taxicabs.

Taking New York City as an example, the market price for a taxi medallion peaked at around $1 million in recent years. Considering that there are 13,000 issued taxi medallions, that implies that the total market value of the right to pick up passengers on New York City streets is worth about $13 billion, or, if you want to think on annual terms, roughly $1 billion dollars a year (assuming you could finance that $13 billion at a moderate cost of capital).

Due to competition from Uber, NYC medallions are going for around twenty percent less than they once did because people doubt how valuable the asset will be over time. But that doesn’t actually mean that the theoretical right granted by a taxi medallion is worth any less; it just means there is uncertainty about how the government will enforce its historical monopoly over the right to pick up passengers off the streets.

Either way, the kicker is that the city government isn’t getting paid $1 billion a year for taxi medallions because it sold the vast majority of the medallions off long ago. They did this for several reasons, including the fact that administering and collecting fares themselves would be too difficult to manage.

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This will cut into the profitability of companies like Uber; however, if they play the change right, it could entrench them more by making the government reliant on their accounting and processes for meaningful revenue.

Hunter Walk commented on this article.
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Rather than deal with the bureaucratic complexity of collecting taxes from everyone, as well as take on the risk and complexity of managing fluctuating revenues, the government chose to take a steady revenue stream from a small number of private citizens and agencies that it could easily know and manage.