Bubble in Taxi Medallions Bursts: How Bad Will it Get? Is There a Trade?

In order to drive a taxi in a big city like New York, Boston or Chicago, the driver must buy a medallion from either the City who issues them or someone else who already owns one. The medallion is a permit of sorts, but it is a permanent one. Once you have the medallion, you can drive a taxi, so long as your car meets regulations on color and safety. The driver must meet qualifications as well.

Driving a Taxi has been a profitable enterprise since the invention of the automobile. People in big cities do not necessarily need a car, so hitching a ride is a relatively cheap way to get around town. When city governments started issuing medallions, their cost was a function of how profitable one could be as a taxi driver. But regulations on taxi drivers, limits on the supply of medallions and the bubble-prone monetary policies of the federal reserve changed all that.

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