By Caleb Taylor
Why do local governments make new taxi companies prove they won’t take profits away from their competition?
Does this kind of regulation, requiring what’s called a “Certificate of Public Convenience and Necessity” (CPCN) serve the public or just current taxi businesses?
That’s what former ACRE Undergraduate Research Fellow Colton Johnson and UCA Associate Professor and ACRE Scholar Dr. Thomas Snyder examine in Inconvenient and Unnecessary? Regulations in the U.S. Taxi Industry published in Studies in Business and Economics.
CPCNs are a common requirement for a new business owner in services such as utilities, communications, healthcare, and transportation, according to Johnson and Snyder.
CPCNs Obstruct New Businesses
Their research paper includes four examples of CPCNs being used to obstruct new businesses from entering the local marketplace. That includes the story of Ken Leininger of Ken’s Cabs. Leininger applied for a certificate from the Little Rock Fleet Services Department. The department rejected his certificate application in 2015 despite admitting he met all of the requirements.
Represented by Institute for Justice attorneys, Leininger later filed a lawsuit against the city of Little Rock claiming that the city’s CPCN laws were unconstitutional. Judge David Laser ruled in Pulaski County Circuit Court that Little Rock’s CPCN laws were indeed unconstitutional.. City of Little Rock officials declined to appeal the ruling and Leininger is now allowed to operate his taxi company within the city limits of Little Rock.
Taxi CPCN Laws Don’t Prevent Crime or Reduce Congestion
Johnson and Snyder also empirically test the effects of CPCNs on the taxi industry.
Johnson and Snyder conclude:
“Evidence suggests that requiring a certificate of public convenience and necessity does not effectively protect or promote the public interest, and in some instances imposes unnecessary costs to consumers and potential entrepreneurs. CPCN laws are often vague, and they have are applied in numerous cases without a clear public purpose. In many instances, the real purpose of the law is to protect the incumbent businesses from competition. This exclusion has allowed incumbent businesses to retain either a monopolistic or oligopolistic hold on the market, passing off costs to the public. The current application of this standard makes these policies all the more egregious as they wear the deceptive mask of promising a protection of the public while hurting the public welfare. Within the taxicab industry, CPNC laws did not improve traffic congestion and did not prevent crime and improve public safety. The laws did raise the cost of public transportation services well beyond the costs of the unregulated transport service, Uber. Thus, not only is it an inefficient way to achieve these listed goals, but CPCN laws failed to accomplish the few measurable objectives extended in its defense. Evidence in the taxicab industry suggests that these laws are unnecessary and inconvenient.”
For more on the pros and cons of policies similar to CPCNs, be sure to check out ACRE’s Labor Market Regulation page.