Applied Economic Consultants

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Case Studies

Metropolitan Taxicab Board of Trade v. City of New York

On just eight days’ notice, applEcon presented a study at an evidentiary hearing that formed the basis for a judge’s conclusion that new taxi lease rate regulations created a mandate to buy hybrid vehicles and presented superior alternatives to the new taxi lease regulations.

The City of New York wanted to create an incentive for taxi fleet operators to buy hybrid vehicles to reduce air pollution. Its second attempt at establishing this incentive was to tweak the regulated rates charged by fleet operators to cab drivers by increasing the lease rate for hybrids and decreasing the rate for non-hybrids. Taxi fleet operators (represented by the Metropolitan Taxicab Board of Trade, or MBOT) opposed the new rates for the same reason the City’s first attempt at establishing incentives was rejected by the courts just months earlier: the City’s proposed regulations created a municipal mandate to buy hybrid vehicles, so were preempted by federal law governing fuel economy. applEcon was called by MBOT to analyze the economic effect of the new regulations on fleet operators’ vehicle purchase decisions and to present its study at an evidentiary hearing in eight days.

Our experience at conducting high-quality analyses under tight deadlines was evident at the hearing: an opposition expert witness testified to a desire “to applaud” applEcon’s “very nice piece of work in a very short amount of time.” Our study showed that under the new regulations, fleet owners’ profit would be three to four times greater if they were to purchase a hybrid rather than a conventionally powered vehicle, and consequently, the regulations were a de facto mandate to purchase hybrids. applEcon also devised a very simple example to explain a key error in the opposing expert’s arguments. The judge found our economic logic to be compelling, calling it “something even a first grader could understand.” As a result, he found our study to be the only evidence presented at the hearing to shed light on the question of whether the regulations constituted a mandate. He agreed that they did constitute a mandate and so enjoined the new regulations.

The creation of a clean-burning taxi fleet in New York City is a laudable goal, but the new regulations were a poorly-crafted mechanism. applEcon devised and presented an alternative set of regulations that would not only achieve more of the City’s objectives than its own proposal without running afoul of federal law, but would also introduce market price signals to the lease rates, thereby enhancing economic efficiency.

For more information on this case, see: 
“Judge Blocks City’s Penalty for Nonhybrid Cab Owners”, The New York Times, 23 June 2009