HowTo: barriers to entry – licenses and medallions

Ever ridden in a taxicab? Those medallions on their bonnet (sorry, Americans: hood) are there for a reason: taxicabs are strictly limited. The right to drive one in Manhattan (for 20 years), for example, auctioned for about USD300,000 a go, back in 2004.

These are a form of barriers to entry, one of the guiding criteria for determining the competitiveness of the market model with which one is working (well may there be over 10,000 taxis in the city, but there are also over 1.5m people living in Manhattan alone).

It’s also, of course, a bloody good way to make some money. Just imagine the revenue to the city: 126 medallions were auctioned off in the story above, and 900 more have been since. Uh-huh. Exactly (sidenote: Marginal Revolution has followed this up with a brief comparison of medallions/licensing, vs. taxation. I’m not that free-market; I think there’s an information problem wherin the Government should serve as an agent, although that, too, has its drawbacks. There’s a decent consideration of the matter here).

This is all off the topic. Today’s licensing story is not New York City Taxis but, rather, New York City vendors.

Out in front of the crowded entrance to the Metropolitan Museum of Art is one of the more lucrative spots in Manhattan to sell hot dogs. It is so good, in fact, that one of the largest pushcart vending companies in New York City pays $574,000 a year to the city for the right to place two hot dog carts there.

The story being about the fellow who has the third cart – without paying any money to the city for the pleasure.

“I’m not really doing it for the money, I’m doing it for the veterans,”Mr. Rossi said while selling hot dogs briskly one recent Sunday afternoon. Mr. Rossi said he is a Vietnam veteran and claims that the city, about a decade ago, wrongly began limiting the number of pushcart permits given to war veterans.

City Councilman Tony Avella of Queens, who also criticizes the city over permits for veterans, held a news conference on Tuesday morning at City Hall to call attention to what he said was a “disgrace by the city, to forget its veterans.”

“The right of veterans to get permits has a long history in this city, and for the past few years, when veterans try to apply for one, they can’t get one,” he said. New York State has allowed veterans free vending permits since the Civil War, he said.

“Free” in the sense that it doesn’t cost them anything – not “free” in the sense of “for-al”:

The city waives fees for veterans and gives them priority on the waiting list of roughly 2,500 people hoping to get permits. But because the number of food cart permits is capped at 4,100 to avoid cart congestion, and few vendors let their licenses lapse, new ones are not given out very often.

Which is where the problem comes in. Mssrs Rossi and Avella oppose the “unfair” treatment given to veterans – but, supposing the number of vendors is capped, how are veterans to get licenses? Do they seriously think redistribution is the answer – taking licenses from other vendors and handing them to veterans? First, the city wouldn’t do that – who’d throw away that sort of money? Second, of course, VA-based welfare policy is one thing; this is something else, and the two should not be so conflated.

So, supposing the number of vendors wasn’t capped?

A proposal he introduced to the City Council last year about permits for veterans had not been granted a hearing … In Mr. Avella’s plan, about 100 disabled veterans would sell “in specified areas of Manhattan that are otherwise closed to vending due to local law, ordinance, rule or regulation.” The legislation seeks to remove “the limitations on food vending permits for disabled veteran vendors.”

What has my attention is the “local law, ordinance, rule or regulation” line. This is the agency problem, again: has the City limited vendor licenses/positioning for the benefit of the people (for example, Mr. Rossi’s cart is directly in line with the Museum steps, whereas the licensed vendors are to the side – pretty much where I’d rather they be), or done so for the benefit of themselves (those two carts pay the city over half a mil per year to be there)?

Perhaps it is not right for the idea not to get a hearing – but the NY Times was not specific about why. Yes, there are more important things in local government, and the City could well have been dealing with those. They could also all be off doing lines of coke, for all I know – the Times writer could have improved our understanding of the issue by letting us know, though. There is also the issue of waiving these restrictions for disabled veterans. Given where many of these restricted sites probably are, the City could well (a) see the lawsuits coming a mile away, from injuries and God knows what else, or (b) just not want the hassle of less-mobile vendors plunking down in heavily-traffic areas (like directly in front of a bloody museum).

It’s an interesting story – one that melds well with Marginal Revolution’s tax idea, to boot. Yes, taxes that mostly made up the license fee would remove the control part of the problem, and just keep price-rationing in place, but there’d soon be equal call for tax-free status for veteran vendors – who’d promptly appear everywhere.

At the end of the day, this ‘stand’ is not a great one. I’m hardly dismissing the need to preserve/improve the quality of life of veterans, but that’s a different policy concern: doing it at the expense (potentially) of the quality and security of life for the rest of the people in Manhattan is more than a little near-sighted.

“It has to be brought to New Yorkers’ attention the injustice that the city is denying a kid coming back from Iraq the right to sell hot dogs,” he said. “I chose this spot because it has a reputation as the premier location, and a lot of people are going to see me.”

He added: “Don’t get me wrong. If I’m going to vend, I may as well make money.”

At least he doesn’t go comparing himself to Ghandi.

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