[aninhumer]

A cap-and-trade scheme is a reasonable option if your goal is to limit the quantity of something (like carbon emissions) while allowing the market to behave as normal otherwise.

But there's no direct reason to limit the number of taxis. People suggest that limiting the supply ensures drivers make a decent living, but if you want that, employment law (e.g. enforcing minimum wage for drivers) is a more direct solution.

[CalRobert]

Considering the negative externalities of taxis on their environment (noise, pollution, congestion, and of course occasionally killing people) there are quite likely reasons to limit the number of taxis.

[aninhumer]

>(noise, pollution, congestion, and of course occasionally killing people)

Again, if we want to limit these things, we should make laws about them directly, rather than arbitrarily limiting one of their causes. Solutions to negative externalities should be primarily based on internalising those externalities, so the market has an incentive to seek alternatives.

What happens if someone invents a more expensive, but quiet and non-polluting taxi? (Which of course, they have.) If you limit the number of taxis, everyone uses the cheaper ones to maximise profit, and you still get some noise and pollution. Whereas if you tax the noise and pollution and it becomes cheaper to buy electric taxis, you've eliminated the noise and pollution entirely.