DC’s New Taxi Pricing

Taxi.pngRegular visitors to Washington, DC this fall will notice a new taxi meter pricing system. It replaces the zone pricing system that had been in effect for generations. Under the old system, fares were based on how many zones a trip traversed (there were 8 main zones and 23 sub-zones); under the new one, fares are based on a combination of distance travelled and time consumed. The change, approved by the Mayor after Congress required him to act, took effect earlier this summer.

Cynics note that the old system benefited Congress. Capitol Hill and Georgetown, where many Members have homes, were within a single zone despite being miles apart; many governmental buildings where Members attend meetings are within a single zone. Citizens and visitors are said to benefit from the new approach. A Washington Post poll reveals that the overwhelming majority of DC residents (some 80%) favored it. Taxi owners and operators resisted, staging work slowdowns and stoppages and unsuccessfully challenging the change in court.

It is possible that neither the old nor new system is optimal, as both are products of regulatory imposition. The alternative to regulatory imposition is private market pricing. Individual taxi operators elect how to price, whether using zones, time and/or distance, flat or negotiated rates, peak and off-peak pricing and so on. The most common approach to taxi pricing in large US cities, however, is by regulatory imposition using the time-and-distance meter pricing, now adopted in Washington. It does not appear that Congress or the District government seriously considered a private market pricing alternative.

The old zone method had several disadvantages. It can be confusing and opaque. Uninformed travelers don’t know how to take advantage of it to minimize fares. There is often only a fortuitous relation between the price and distance travelled or time involved. The DC zone system also enabled drivers to charge different prices to different customers, depending on a sense of whether they were, say, tourists or local denizens.

The zone method also has some advantages. It carries no incentives for drivers to drive out of the way; it enables those in the know to catch and drop off within few zones. Yet time-and-distance meters are imperfect too. On long trips, meters result in relatively lower fares given distance compared to short trips, where they result in relatively higher fares given distance.

The case for private competitive rates emphasizes that taxi cabs are private enterprises funded by private capital. Such rates also can enhance consumer choice. True, consumers cannot always easily discriminate or negotiate fares when hailing a cab. But it can occur often with roving livery cabs and certainly occurs with chauffeur transport where fares are privately negotiated typically outside the public commission’s jurisdiction. Revisions can even be made mid-trip, to address surprise traffic jams and other surprises.

Regulatory commissions setting fares can sometimes interfere more deeply in market operations. They often limit the number of cab companies or cabs in operation. Cab rates may be kept artificially high to induce people to use city transportation, especially subway systems. This may now be occurring in Washington. The DC meter pricing is expensive: the initial rate in DC is $3, compared with $1.75 in Boston, $2.25 in Chicago and $2.50 in New York.

These issues and details aside, what may be most interesting about this change is that Congress, in legislation written by Carl Levin (D. Mich.), instigated it. Congress essentially demanded that the DC government adopt the meter system or explain why not. For a time, at least, it will be a daily reminder of how much power Congress wields over the District and its citizens, even though we have no representation in that body.

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8 Responses

  1. Sean M. says:

    While private pricing seems like a libertarian Mecca in the abstract, it is to the detriment of travelers and tourists that often rely on cab systems.

    If you were at the airport and needed to hail a cab, how do you comparison price shop? Would you want to? Or when you’re standing on a street corner, as you mention, how do you work that out?

    And finally, you mention the possibility of changing rates mid-trip. Is that the, “Pay my higher fare now or walk?” possibility? If so, it seems to strike at the heart of several contract principles about the “Hold Up Game.” In short, I think regulatory pricing is necessary in the real world to make cab systems meet the purposes they were meant to achieve.

  2. wow says:

    boy, this piece epitomizes academic, pie-in-the-sky writing.

    isn’t it great to have a job where you’re supported by students’ inflated tuitions?

  3. a reader says:

    I don’t think we need speculate on how such a system would work – it’s basically in place in many places. I lived in Cairo for a year and cab fares were a matter of constant negotiation. Generally – generally – if you knew what the agreed upon price to a destination would be, you could get out at the end of the ride, hand the bills through the window, and walk away.

    However, if you didn’t know what the fare should be, looked like someone who didn’t, or were going to or from a touristy destination, all bets were off. Demanding the driver stop and storming off, getting in screaming matches during rides, and having irate drivers follow after you yelling (regardless of whether you had given them a reasonable amount or not) were pretty common.

    I kind of enjoyed it. I suspect, however, most Washingtonians would not be in favor of it even if it ultimately saved them a few bucks here or there.

  4. Matt S. says:

    “The zone method also has some advantages. It carries no incentives for drivers to drive out of the way…”

    Not true. Because the zone system charged you based on the number of zones you traveled in, if your starting point or destination was near the edge of a zone, an unscrupulous cabbie could easily take a different route so as to pass through 3 zones instead of 2.

    Happened to me a lot until I wised up.

  5. Steve says:

    The worst thing about DC is the surcharges. You see the meter go up to like $8 in extras before moving an inch. Gas surcharge, 1.50 per passenger, etc. etc.

  6. Andrew Carlon says:

    I would second Matt S.’s comment. Indeed, the zone system provides the ability to overcharge for even trivial differences. You’d ordinarily have to do a fair amount of extraneous driving to increase the fare by $2. But you could do it under the zones by simply taking an alternative route that might just take you a block out of your way–or even by dropping people off on a different side of the street! Georgetown (where I went to school) was located at 37th St., the border between zone 1 and 2A. Going into the city, you were on the northbound/east side–still in Zone 1. Going home, they would drop you off on the southbound/west side, and typically would demand the extra zone’s fare. Or you could ask them to drop you off a block away from campus. A meter avoids this kind of arbitrary regulatory gamesmanship.

    (I also second “a reader”‘s experience in Cairo. The only way to avoid getting ripped off was simply to drop what the “real” fare was, and walk away–negotiation would get you nowhere. But you had to be positive that it was, in fact, the real fare. Otherwise, the cab driver would stop the car, in traffic, and get out and come after you.)

  7. Aaron says:

    Two points. First, it really should be by market forces. The government should only require a clear marking of the standards of measure–by mile, by time, by zone or some combination thereof.

    Second in regard to: “even though we have no representation in that body.”

    You know as a resident of Falls Church, Va, I am sick and tired of people who paid extra for the convenience and prestige of living in D.C. complaining that they have no vote. You go 10 miles in any direction, you have a vote. But noooo… you had to live in the capital. Its understandible, but that is the price you pay. There is and should be one plot of land in this country where the Fed Gov. excercises absolute dominion and that is its capital. If i had my druthers, i would expand it all the way down to the pentagon.

    And, btw, if we decided to undo that arrangement, the right answer isn’t to make DC a state: its to reabsorb it back into MD, just as the VA side of DC was reabsorbed back into VA some time back. But under any circumstance, this is a bad idea. Our capital should not be subject to the caprices of any local government.

    And if you don’t like it… MOVE. Take it from someone who made that exact decision. (Or more precisely, chose never to live in the district in the first place). For the life of me, I can’t understand why so many people whine about this when it is so easy to change.

  8. Stokie says:

    The fact that the drivers were so vociferously against the new meters constitutes incredibly strong (albeit anecdotal) proof that the new system benefits consumers of taxi services. The old system was a license to rip people off, and not just tourists. Before buying a car, I took a cab almost every night from the heart of D.C. to my home in Alexandria. While it was obvious I was no tourist, drivers charged me anywhere from $11 to $23, depending on their own, personal ethics.

    While it may seem that, in theory, there is competition in cab services, in practice the degree of competition will vary by time and location. Thus, cab drivers will often be monopolists, and in all cases will also have a strong informational advantage over virtually any passenger. As such, regulation is entirely appropriate and the thesis of this post is simply wrong.