Local Exclusive Cruising Regulation and Efficiency in Taxicab Markets

Exclusive cruising regulations restrict cruising in a city's streets to taxis licensed by that city. These regulations create inefficiencies in metropolitan areas comprising multiple municipalities. Taxicabs driving passengers into an adjacent city have to return empty to the city of origin, and customers experience longer wait times because some of the empty taxicabs passing by are not allowed to offer rides. This paper shows that substituting metropolitan regulations for municipal ones can benefit consumers without hurting producers. The theoretical results are applied to the taxicab market in the adjacent cities of Boston and Cambridge, Massachusetts. Data on taxicab crossings between both cities are used to estimate the effects of merging both cities' taxicab fleets. The results can be extended to other metropolitan taxicab markets.