Abstract. This study utilizes a unique dataset from New York City to examine the
effects of taxi fare increases on trip demand and the availability of taxi service. The
elasticity of trip demand with respect to fares is estimated to be –0.22; the elasticity of
service availability with respect to the taxi fare is 0.28; and the elasticity of service
availability with respect to total supply of service is near 1.0. These results have
important implications for taxi regulatory decisions. First, fare increases do
substantially increase industry revenues but at a lesser rate than the percentage increase
in the fare. The implication for policy-makers is that fare elasticities must be carefully
considered to obtain desired improvements in drivers’ earnings. Second, service
availability—an important aspect of service quality that is generally overlooked during
fare policy debates—should be a central consideration in fare setting, given the
considerable impact of fares on availability. Finally, where the supply of cabs needs to
be expanded, the number of cabs can be significantly increased without harming the
revenue stream of existing operators. This finding alleviates a major industry objection
to issuing additional taxicab licenses