The B.C. Court of Appeal will soon rule on whether 38 suburban taxicabs can take passengers in downtown Vancouver on Friday and Saturday nights. For 18 months, the Vancouver taxi companies and their suburban brethren have been locked in a legal battle over B.C. Passenger Transportation Board decisions supporting this change. The litigation provides citizens with a roadside view into British Columbia’s antiquated taxi regulations.

To understand why companies are fighting over a small number of additional taxis, we need to make economic sense of the province’s perplexing taxi regulations. Unlike a coffee shop or pizzeria, regulatory roadblocks prevent new taxicab companies from offering service in Vancouver. The provincial regulator has not issued a Vancouver taxi license to a new business in over 25 years, despite frequent applications.

Because new firms have been prevented from entering the taxi market, the right to operate one taxi in Vancouver trades for about $800,000. The high price for each taxi reflects super-normal profits earned by the industry, not the $100 annual fee charged to renew each permit.

If a piece of paper is worth $800,000, someone is footing the bill, and this is Vancouver taxi riders who pay higher fares than residents in Toronto, Montreal, and Calgary. The comparison is even starker with international cities that allow open entry into the taxi industry. For example, Vancouver passengers pay 73-per-cent more for a five-km taxi ride than passengers in Washington, D.C.

Taxi drivers do not benefit from the arrangement because they must pay high lease fees to the taxi companies for the right to operate. A driver must pay the permit owner about $200 for a 12-hour Friday night shift. Drivers are also responsible for gasoline costs, so a driver needs to collect more than $400 on a weekend night just to earn minimum wage.

The Vancouver companies’ expert witness, Dr. Dan Hara, filed a B.C. Supreme Court affidavit stating “license holders (not drivers) receive the excess value from license rights and bear 100 per cent of the loss from any decline in that right.”

Beyond constraining competition, the province encourages waste with boundary rules that prevent trips from happening. If a Richmond taxi drops a passenger in Vancouver, provincial rules forbid the taxi from collecting a return fare in Vancouver. Instead, the taxi must return to Richmond empty, thus increasing road congestion and greenhouse gas emissions and wasting driver time.

The boundary rules encourage Vancouver taxis to refuse trips despite the fact it is illegal to do so. A report commissioned by the Vancouver Taxi Association found 21 per cent of passengers were refused boarding in April 2011. Drivers refused trips with suburban destinations because they ended in an area where Vancouver taxis are prohibited from picking up. Their reluctance is not surprising given the expensive lease payments drivers have to make each shift.

Vancouver’s regulatory regime contributes to more expensive fares, longer waiting times and pointless waste. The city has fewer taxis per resident than other major Canadian cities, so the public is under-served. Allowing freer entry of new taxi companies and more taxis for existing companies would support lighter-footprint travel because taxis complement use of public transit.

British Columbians are also concerned about growing inequality, yet taxi regulations protect the interests of the few who reap super-normal profits from their taxi shares at the expense of heavier taxi users such as the disabled and poor.