Taxis are regulated almost everywhere. The possible reasons include the following: to avoid disputes between passengers and drivers; to contain the number of taxis on the road, so as not to overload the roads; to protect passengers as well as drivers from crimes and from other dangers, including making sure that they have insurance coverage; and to ensure that consumers who need services can get them within a reasonable waiting time.

In general, the authorities would like to regulate the number of taxis on the roads. Since taxis tend to be running most of the time each day, they are intensive users of road space. If anyone is welcome to enter the taxi business without limits, there may be too many taxis, and the resulting congestion may be intolerable. The case for regulation on these grounds is one of "externality". Taxis cause an external cost to a greater extent than private vehicles.

The authorities would also like to regulate fares. Fare regulation makes fares transparent. Passengers simply pay according to the meter as prescribed by the law. The operator is not supposed to ask for more than what is allowed. From time to time, the police catch unscrupulous operators that overcharge tourists and operators who tamper with the metering mechanism so as to charge more. Some cities, such as Singapore, ensure that taxis charge at a higher rate at certain hours, such as during peak hours or late night hours. Hong Kong allows additional charges on luggage and on pets. Having transparent fares is considered very important. In particular, Hong Kong certainly would not like to see taxi operators ripping off tourists who visit Hong Kong by overcharging. That would damage the reputation of Hong Kong as a tourist-friendly destination.

Today, taxi operators need to post their operator ID with their picture and the taxi plate number, as well as a phone number to lodge complaints, at a prominent place in the taxi. This helps prevent crime.

At present there are 18,138 taxis in Hong Kong, of which 15,250 are urban taxis (red), 2,838 are New Territories taxis (green) and 50 are Lantau taxis (blue). The Transport Department has traditionally used a system of permanent licenses ("medallions") for all three types of taxi. These licenses are open for tender from time to time, though there has been no new issue of licenses for urban taxis since 1994. The last tendering exercise was for Lantau taxis and the results were out in April this year, with prices ranging from HK$5.48 million to HK$5.61 million. In the open market, urban taxi medallions fetched as much as HK$7.66 million in 2013, but prices have since fallen back.

It is believed that this price decline is partly due to the entry of Uber into the Hong Kong market.

Uber runs on a "sharing economy" principle. A car owner or anyone with access to a car can work in the hours that he/she can spare to take orders using an app. But he or she first has to register with Uber. There is no direct money transaction between the driver and the passenger(s), and drivers are all self-employed. They are paid by direct deposit based on services rendered. Taxi owners complain that Uber is stealing business from them without having to pay for the license cost. Compared to regular taxis, Uber's fares are very sensitive to market conditions. Since they are not regulated by the government they can be adjusted swiftly, contributing to efficiency. Fare transparency is maintained, though.

A problem with Uber providing competing services with taxis is that the government loses control of how many de facto taxis are on the roads. As explained above, one rationale for limiting the number of taxis is that they cause more congestion and other external costs than other vehicles. If a private vehicle is turned into an Uber vehicle, its very minimal license fee as a private vehicle will be too low. Although it does not cruise around to take passengers, it is expected to be cruising at convenient locations to enable it to offer its services in a timely fashion to customers. The government is also concerned that Uber vehicles may not provide adequate insurance for their operators and passengers. Thus the operation of Uber taxis is currently illegal in Hong Kong.

Presently the government plans to issue an additional 600 new taxi licenses, but the new taxis will offer premium services. Regular taxi owners of course protested about the plan, because new licenses may further erode the market prices of the medallions they own. However, the government has never promised that the number of taxis will stay put. Premium taxis provide an additional choice for the public. I would urge that any new taxi license to be issued should be priced at a reasonable price and be valid for a limited time period only. This will allow the government to recoup the capital gains that otherwise will go to owners of permanent taxi medallions.

(HK Edition 06/21/2016 page10)