The price of a New York City taxi medallion has gone through the roof in the past few decades. Here's why.

Two New York taxi medallions just sold for $1 million each, the New York Times reports. That's a new record.

Every cab in New York City has to have a medallion. And the city strictly limits the number — currently just over 13,000. So as New York has prospered over the past few decades, the price of medallions has gone through the roof.

The same guy who brokered the sale of the million-dollar medallions this week sold the first $100,000 medallion back in 1985. (Adjusted for inflation, that would be just over $200,000 today.)

A whole industry has sprung up around the medallions themselves. As the NYT notes, there's a publicly traded company called Medallion Financial that makes loans to people who want to by medallions. Its ticker symbol is TAXI.

The medallions are create a textbook example of what economists call rent-seeking behavior: Basically, gaining extra profits without providing extra benefits. If the number of taxis were allowed to increase (and if cab fares were unregulated), the number of taxis would increase and the price of a cab ride would fall.

In his basic economics textbook, Paul Krugman points out one unwelcome unintended consequence of the taxi medallion system:

Quantity controls generate an incentive to evade them or even to break the law ... there are substantial numbers of unlicensed cabs that simply defy the law by picking up passengers without a medallion. Because these cabs are illegal, their drivers are completely unregulated, and they generate a disproportionately large share of traffic accidents in New York.

The city issues two types of medallions. The $1 million medallions are corporate medallions, which owners can lease out to drivers 24 hours a day. A second type of medallion must be driven by the medallion owner a significant part of the time. That type of medallion is worth a bit less. [Copyright 2011 National Public Radio]