Asymmetric Information and Taxicabs

Under traditional taxi service models, consumers are at an informational disadvantage when hailing a cab. Since they can see the cab only from the outside as it screeches to a halt, people can’t tell whether the inside is clean, whether the driver is well-kempt, whether he will drive safely or whether the price is reasonable.

So, the argument goes, government regulators like the D.C. Taxicab Commission can solve the problem by establishing uniform codes of conduct and by pre-screening drivers for the consumers’ benefit. To this end, the commission establishes detailed cost and quality regulations, mandating everything from the per-mile fare that cabs may charge to the appropriate shade of carmine (or is it chestnut?) with which to paint cabs. Ideally, these rules make sure that cabs and their drivers meet the highest standards of quality and customer service.

Taxi

One company has found a way to solve this asymmetric information problem without government regulation. How have regulators reacted?

You can read the rest of my piece in the Washington Times to find out.