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Saturday, January 26, 2013

Law and economics in the Beijing taxi industry

Some years ago I read a fascinating law-and-economics analysis of the Beijing taxi industry [available here; thanks to a commenter for the link] written by a Chinese graduate student under Prof. Fang Liufang; as a piece combining empirical research, economics, and law it really stood out among the usual crop of dreary statutory exegeses. I was reminded of it today when I came across a pair of articles discussing well known (at least, well known to those of us who spend time in Beijing) problems getting taxis in Beijing.

The Global Times reports that the Beijing government recently passed rules designed to address the problem: if a taxi company is the subject of too many complaints (for example, about drivers refusing to pick up during peak times), then it will be punished. This attempt at a cure obviously reflects a particular diagnosis: that the reason drivers refuse to pick up fares is just simple cussedness.

But of course that's ridiculous. Like most of us, Beijing cab drivers hope to earn money from their occupation. And as anyone who has talked to a Beijing cab driver about this knows, a cab driver loses money by taking fares during rush hour and other times when traffic is jammed (which is a lot of the time in Beijing). The meter simply ticks over too slowly for them to recover their fuel costs; they're better off parking of-road with the engine off instead of parking on the Third Ring Road with the engine running.

One obvious solution is to raise the permitted rate, which has stayed the same now for (I believe) over a decade, although fuel surcharges of one or two yuan per trip (totally unrelated to distance) have been around for a while. Another solution is to return to the good old days of the 90s, when different classes of taxis were allowed - some were nice cars that cost more, some were in ... let's say, less nice vehicles, and cost less. A third alternative is to subsidize taxi drivers - this is suggested by Prof. Meng Bin, a professor of urban planning quoted in the Global Times story. (This seems like the worst solution to me; subsidies are always tremendously hard to administer and vulnerable to cheating, and it's hard to see why (relatively well-off) taxi riders should be supported by (less well-off) non-taxi riders. In addition, Prof. Meng suggests this because he's opposed to any increase in fares; it's hard to see the basis for thinking that somehow the current fare structure, in January 2013, by some amazing coincidence is exactly what it should be and mustn't be changed.)

For a more detailed analysis of the economics of it all, see this article by Michael Cormack.

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Hongkong and Shanghai also have traffic jams but why the complaints about taxi drivers are much less?The taxi drivers do not have the service attitude and the companies do not have good busine model in Beijing( code of conduct may never be heard by the drivers). People in Beijing know how to complain and get advantage from it. They get used to unfair advantage and do not want to improve the things by their own efforts.

Posted by: Elaine | Jan 27, 2013 7:10:41 PM

I read the same article, which is an excellent piece. You can find it here:

Posted by: GR | Feb 13, 2013 2:49:35 PM

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