DEREGULATION OF TAXIFARES IN SINGAPORE

Abstract

This paper is a study of the feasibility of taxifare deregulation in Singapore. The Ministry of Communications floated a proposal in earlier 1993, to deregulate taxi services. The government had two main aims for this policy proposal. Firstly, it is to allow more taxi companies to operate and to set their own fares, so that the industry would be more competitive and thus improve the service level. Secondly, it is to enable taxi drivers to earn a decent living, commensurate with other workers in the transport and communications sector, by letting market forces determine the income level. A review of the deregulation movements around the world shows that deregulation might not lead to improved welfare for both the taxi drivers and commuters. In particular, the experiences of the U.S. cities, where one of the earliest and most extensive deregulation movement started, indicate that many deregulated cities returned to the regulated regime. This paper attempts to build a mathematical model to examine the effects of deregulation. The model shows that a combination of the optimal fare level and total number of taxis is necessary to attain the maximum social welfare outcome. The model also shows that a regulated regime with licence fee, which corresponds to the fare level, will produce an efficient outcome compared to a deregulated regime.