Are taxicabs allocated optimally?

Here are some simple facts, for instance:

On a Saturday at 11 p.m., it’s easier to hail a cab on the nightclub-and-bar-filled Lower East Side than at Grand Central Terminal. Columbus Circle gets more passenger pickups than the Port Authority bus station. And make sure you are in the right neighborhood: taxi rides are 25 times as likely to start in the West Village as in Washington Heights.

I am wondering whether these patterns are optimal in the economic sense.

One non-optimality is that too many cabs cruise (and deliver passengers) in the crowded part of the city, not taking congestion costs into account.  But that we already knew.  Congestion aside, is there another suboptimal clustering effect?

If I go hear Joe Lovano at the Village Vanguard (West Village, heavily cabbed), 11 p.m. show, I know I don't have to walk back to my uptown hotel or take the subway.  So I make cab-dependent plans and I go to the late show rather than the early show.  Some particular cabbie benefits from the fact that other cabbies have cultivated a pool of ready customers in the area.  It's like a well-functioning singles bar with lots of matches.

If one extra cab were allocated away from the West Village and to Washington Heights, would that create on net more valuable cab-consistent plans?  That's an empirical question, but the basic issue is whether marginal spillover externalities are more potent in very dense or very sparse clusters.  

You'll note that, by law, cabs are supposed to charge a single rate for all rides.  That leads to a shortage of trips in dangerous areas, but it doesn't answer the question about where the marginal externality is greater.  It could be that the sparse cluster cannot achieve critical mass and thus investing there is largely a waste.

A second question is whether the marginal external benefit is greater for the cabbie or the rider.  As Coase's logic indicates, riders can be misallocated just as cabs can be.  Maybe I'm going to the wrong night club.

Addendum: I liked this bit:

At 3 a.m. on a Sunday, passengers stumble into more cabs at 10th Avenue and 27th Street in Chelsea than anywhere else in the city. About as many taxi trips begin there at that hour on average as at 9 a.m. on a weekday at the Seventh Avenue entrance to Penn Station.

Taxi trips may also offer a more objective guide to night-life trends than Zagat: late-night pickups in the meatpacking district dominate other popular areas like Sheridan Square and St. Marks Place. The East Village barely cracks the top 10 on early Sunday mornings, but if you need a cab, try Third Avenue and 11th Street.

There's also a new iPhone application that tells you where to stand to maximize your chances of getting a cab; I wonder if this will turn out like portfolio insurance in 1987!?


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