Paratransit services and efficiency: The potential of utilizing idle taxis in a strained welfare market

With population aging, demand for paratransit services has increased, leading to higher operating subsidies. This study uses Japan as a case study to examine the substitutive relationship between subsidized noncommercial wheelchair-accessible vehicles (WAVs), primarily owned by elderly care facilities, and taxis, highlighting inefficiencies in the open-entry paratransit market. Using nationwide panel data, we find that a 10% increase in WAVs results in a 1.7% decrease in taxi revenue, reducing taxi drivers' income by approximately 5%. This effect is more pronounced in regions with higher aging rates and welfare spending. We suggest utilizing vacant taxis for paratransit services to enhance market efficiency.