Why do cab medallions go up?

image:Mister-E via flickr (cc)

image credit:Mister-E via flickr (cc)

Last time we looked, Chicago taxi medallions were going for slightly over $250,000, far higher than a few years earlier.  In the subsequent 17 months, they’ve continued their rise, and here are the most recent transactions reported on the City’s web site:

4/27/12    6601    $325,000
4/27/12    5594    $345,000
4/30/12    6182    $348,000
5/3/12      1839     $360,000
5/4/12      2297     $370,000

Now, I do not follow taxi matters in great detail, as I am not of the economic class which can regularly use cabs.  But it’s hard to believe that, in less than two years, the economic value of the privilege of operating a taxi has increased by anything like 50%.

The best explanation, I think, came from a driver who styles himself Samuel Langhorne Insull.  He explained that medallions aren’t used by taxi passengers, but by taxi drivers.  And who are the taxi drivers?  For the most part, they’re people unable to get work in their chosen or more lucrative professions, who drive a cab for survival.  And are there more of those people nowadays, or fewer?

That makes sense as the main cause.  Of course, additional pressures are the general levitation of financial asset prices due to the FRB’s zero-interest-rate policy, and perhaps anticipation of future increases in value.

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