Problematic Private Property: The Case of New York Taxicab Medallions Katrina Miriam Wymant Yellow taxicabs are an iconic symbol of New York City. Almost as well- known as the City's yellow taxis are the valuable licenses that vehicles must have in order to be used as taxis. Often called medallions, these licenses constitute a form of private property. They are routinely bought and sold, leased, used as collateralfor loans, and count as assets in bankruptcy. This Article emphasizes the political character of property rights in the modern state through a case study of why New York taxi medallions continue to exist. Prominent explanations of the evolution of property rights imply that they are a distinct category of rights that emerge organically within society because their benefits exceed their costs. This Article takes a decidedly more regulatory view of property rights as top-down creations of the state. As instruments of the state, property rights arise and persist from political decision-making processes influenced by interest group pressures. This avowedly regulatory conception of property rights suggests that we likely have both efficient and inefficient property rights because there is no necessary correspondence between what is cost-beneficial for society as a whole and the outcomes of political decision-makingprocesses. This Article argues that New York taxicab licenses are an instance of inefficient private property rights sustained by political decision-makingprocesses subject to pressuresfrom powerful interest groups. T Professor, New York University School of Law. This Article benefited from presentations to the Comparative Law and Economics Forum, the Property and Philosophy Working Group, Universitat Pompeu Fabra, the NYC Junior Faculty Colloquium, the Radzyner School of Law at the Interdisciplinary Center Herzliya in Israel, the University of Haifa Faculty of Law, NYU Faculty, and the Law and Economics Seminar at Harvard Law School; from comments from Robert Ellickson, Richard Epstein, Sam Estreicher, Clayton Gillette, Rick Hills, Stephen Holmes, Dan Hulsebosch, Lewis Kornhauser, Jim Krier, Amnon Lehavi, Michael Levine, Daryl Levinson, Susan Rose-Ackerman, Chris Serkin, Steve Shavell, and Frank Upham; and from conversations with Daniel Ackman, John Eccheveria, Ed Koch, Thomas Merrill, Ed Rogoff, and individuals in the taxi industry and taxi regulatory community who spoke with me on the condition that I not identify them. Thanks also to the staff at the New York City Hall Library and Municipal Archives. Hayden Bui, Amanda Marie-Frances Bakale, Jonathan Horne, John Infranca, Mark LeBel, Andrew Michaels and Matt Williams provided research assistance. The Yale Journal on Regulation provided superb editorial assistance. The Filomen D'Agostino and Max E. Greenberg Research Fund at New York University School of Law provided financial assistance. 125 Yale Journal on Regulation Vol. 30, 2013 The Article makes two main contributions. First, it contributes to property theory by emphasizing that property, especially in modern times, is an instrument of state regulation that should be analyzed using the same tools commonly used to study other regulatory instruments. In the contemporary world property rights are not separate and apartfrom the state, and they are prone to the same distorting influences as other forms of state regulation. Second, and more concretely, the article draws attention to the manner in which taxis are regulated in New York and elsewhere using problematic property rights. 1. Introduction .................................................. 126 11. New York Taxicab Licenses in Context..................... 130 A. Overview of the New York Taxi Industry and Its Regulation.......... 130 1. Yellow Medallion Taxis .................. ............ 131 2. For-hire Vehicles ..................................... 133 3. Proposed Reforms .................................... 134 B. New York City Taxicab Licenses as Property......... .......... 135 III. Theories of the Evolution of Property. .................. ........ 140 A. Demsetzian Theories ........................................141 B. PoliticalEconomy Theories ............................ 146 IV. Rejecting the Demsetzian Hypotheses. .................. ....... 147 A. Externalities ................................ ........ 148 B. Enforcement Costs ...........................................152 V. Political Economy Hypothesis for Taxicab Licenses ......... .......... 156 A. A Demand-Side Hypothesis .....................................156 1. Stakes............................ ............. 156 2. Organizational Costs ................. ................. 163 B. A Note About the Supply-Side ................... ........ 165 VI. Evidence from New York Taxi History.. ...................... 167 A. The Birth ofMedallions in 1937. ................... ...... 168 B. The "Gypsy Cabs .........................................170 C. Mayor EdwardKoch's Unsuccessful Reform Efforts ..... .....173 D. New Medallion Auctions ......................... ...... 177 E. Mayor Bloomberg's Five Borough Taxi Plan......... .........179 VII. Conclusion.............................................. 185 1. Introduction Yellow taxis are an iconic symbol of New York City.' Many New Yorkers use them to get around because they do not own cars.2 Taxis also I. Phil Patton, The Taxi as icon, TAXI OF TOMORROW, http://www.nyc.gov/html/media/ totweb/taxioftomorrow taxiasicon.html. 126 Taxicab Medallions transport tourists.3 Taxis routinely figure in movies and television shows about New York. They also are the subject of frequent griping, trinkets that tourists buy, and jokes on late-night talk shows. Almost as well-known as New York's yellow taxicabs are the City's valuable taxicab licenses, often called medallions. In New York and many other cities in the U.S. and around the world, the number of taxicabs is limited and a taxi driver must have a license to operate a vehicle as a taxi, in addition to an individual taxicab driver's license.5 These numerically limited taxicab licenses often are bought and sold much like conventional property rights in tangible things such as houses. Indeed, since the fall of 2011, corporate New York taxi medallions have been selling for one million dollars or more each.6 Since 1980, New York taxi medallions have been a better investment than U.S. housing and gold. '7 Elsewhere in the U.S. and abroad, taxi licenses also are valuable.8 2. HENNINGSON, DURHAM & RICHARDSON ARCHITECTURE & ENG'G, P.C., TAXI MEDALLION INCREASE: DRAFT ENVIRONMENTAL IMPACT STATEMENT ES-3 (May 2012) [hereinafter HENNINGSON DRAFT EIS] (prepared for the NYC Taxi & Limousine Comm'n), http://www.nyc.gov/ html/tlc/downloads/pdf/taxi medallion increase.pdf ("Fifty-four percent of New York City households do not own a car."). In the borough of Manhattan, "only 24% of households own a car." Id. 3. Residents of Manhattan are by far the main consumers of yellow taxi trips in New York, with 71 percent of taxi trips carrying Manhattanites. SCHALLER CONSULTING, THE NEW YORK CITY TAXICAB FACT BOOK 6 (Mar. 2006) [hereinafter SCHALLER CONSULTING], http://www.schallerconsult.com/taxi/taxitb.pdf "Outer-borough residents, suburbanites, U.S. residents from outside the New York area, and foreign visitors each account for between 5% and 10% of all [taxi] trips." Id. 4. This Article uses the terms license and medallion interchangeably. 5. ORG. FOR ECON. CO-OPERATION & DEV., POLICY ROUNDTABLES, TAXI SERVICES: COMPETITION AND REGULATION 2007, 21, 200 (2008) [hereinafter OECD]; see also 35 R.C.N.Y. § 58- 12(a), (d) (West 2012) (requiring a medallion to operate a taxicab in New York). 6. Michael M. Grynbaum, 2 Taxi Medallions Sell for $1 Million Each, N.Y. TIMES CITY ROOM (Oct. 20, 2011), http://cityroom.blogs.nytimes.com/2011/10/20/2-taxi-medallions-sell-for-1- million-each/; NYC TAXI & LIMOUSINE COMM'N, 2011 Monthly Medallion "Accessible" Sales - Average Prices & Number of Transfers (Dec. 2011), http://www.nyc.gov/html/tlc/downloads/pdf/avg med price_2k Ildecember.pdf; NYC TAXI & LIMOUSINE COMMN, 2012 Monthly Medallion "Non- Accessible" Sales - Average Prices & Number of Transfers, http://www.nyc.gov/html/tlc/downloads/ pdf/avg medprice 2012_september.pdf For a description of corporate taxi medallions, see infra notes 36-40 and accompanying text. 7. Ilan Kolet, New York City Cab Medallions Worth More Than Gold: Chart of the Day, BLOOMBERG (Aug. 31, 2011), http://www.bloomberg.com/news/2011-08-31/ny-cab-medallions-worth- more-than-gold-chart-of-the-day.html. According to the chart, medallion prices have increased over 1,000 percent since 1980, compared with 216 percent for housing and 181 percent for gold. See also Dan Cumming, Why has the Price of Taxi Medallions Increased So Dramatically? An Analysis of the Taxi Medallion Market, 17 THE PARK PLACE ECONOMIST 12, available at http://digitalcommons.iwu.edu/cgi/viewcontent.cgi?article 1313&context-parkplace (analyzing increase); Felix Salmon, Why Taxi Medallions Cost $1 Million, REUTERS (Oct. 21, 2011), http://blogs.reuters.com/felix-salmon/2011/10/21/w-hy-taxi-medallions-cost-1-million/ (analyzing why medallions are valuable). 8. See, e.g., OECD, supra note 5, at 208-09 (indicating that licenses in Paris are valued at C125,000, in Brisbane at A$405,000, and in Hong Kong at HK$3,000,000); MEDALLION FIN. CORP. 2010 ANN. REP. TO SHAREHOLDERS 7 (2010), available at www.annualreports.com/HostedData/ AnnualReports/PDFArchive/taxi2010.pdf (last visited Nov. 21, 2012). 127 Yale Journal