The Aug. 14, 1906 NYT has another article concerning the taxameter (which is the new spelling being used rather than "taximeter") and the overcharging by cabbies. In this round, the head of the Independent Hackman's Association offered the following bone to the Merchants' Association:

If it [the Merchants' Association] will urge a law, and aid us in its passage, limiting the number of cab licenses to 2,000, every cab driver will buy a taxameter, and there will be no more overcharging.

The rather explicit admission that overcharging is occuring in NYC is a bit of a retreat from earlier statements in which the hackman's association claimed that overcharging was the sole province of the "night hawks" or those who ran cabs during the evening hours.

It isn't clear exactly how many cab licenses are let at the time, but the proposal suggests that it is considerably more than 2,000.

So let's get this straight. The public wants the cabbies to stop overcharging from the legal rate of $0.50 per mile. The public has a hard time avoiding the overcharge because they are often physically intimidated by the cabbies or are ignorant of the legal rates (cabbies have the rates in a book but only have to reveal the rates upon request - there is a proposal to post the legal rates on the cab itself where the fare can see the price, but the cabbies have balked at that proposal). There is an appeal process which requires the fare to file a formal complaint against the particular cabbie, indentified by a license number, and specifying the pickup point, the dropoff point, the price charged, the day and the time. If the appeal is upheld, the cabbie is forced to refund the overcharge and pay a fine. The refund is then posted to the address provided by the complaintant. Yet, this appeal process is time consuming, and, for many, might not be worth the trouble.

The taxameter is a proven technology that will make the fare more legitimate and which costs approximately $15. The real question is who pays for the taxameter? If the government mandates the taxameters, there are many who claim the government should pay for them. On the other hand, the government suggests that the taxameter should be paid for by the cabbies. The cabbies, of course, do not want to pay for the taxameter. The public stands to gain from the technology, but it would prove difficult to have the public pay for the taxameters.

A Ramsey-type tax could be instituted. In other words, there would be a "taxameter tax" that each fare would pay that would go to the government for the cost of the taxameter. However, such a tax might turn out to be like the telephone tax for the Spanish-American War and never disappear.

The answer, according to the Hackman's Association, is to restrict the supply of cab services, thereby likely increasing the price of cab services, at which point the cabbies will purchase the taxameter and stop "overcharging." This is similar to the Ramsey-type tax in that the users (cab fares) will pay for the taxameter. However, the cabbies' solution would not only reduce the quantity of cab services available, which would cause an unambiguous decline in consumer surplus and an ambiguous effect on producer surplus, but would likely increase prices more than the optimal user tax, thereby causing greater dead weight loss than if the taxameters could be purchased in a different way.

These are the types of problems that "good" government or centralized decision making could solve, that is, to internalize the benefits of a new technology and reduce the free-rider problem. Unfortunately, whether 1906 or 2006, the proposed solution to a real problem seeks a government intervention that is likely to cause as many new problems, in terms of market conduct and performance, as it solves.