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Treating Car-Hire Services as Public Goods

I love Emily Badger’s Wonkblog piece about Uber’s effect on the taxi industry. Badger addresses many different sides of the issue, discussing the likely impact of Uber on medallion owners, on drivers, on medallion management companies, and on consumers. She is non-dogmatic throughout. She moots a few different potential outcomes, recognizing that much will depend not just on the “market” itself but also on the strategic behavior of the different institutional players. I wish all economic journalism were this good.

I do want to expand on Badger’s treatment of taxi deregulation, and to say a little more about my idea, in my last post, that regulators “treat car-hire services as public goods.” In retrospect, that post jumped too quickly from that idea into a broader argument about distributive policy and politics. That was unfortunate, I think, because the possible regulatory approaches here warrant deeper consideration.

On the first point, Badger notes that various Sunbelt cities deregulated their taxi industries in the 1970s and 1980s, with decidedly mixed effects. Supply went up, but fares also went up, and service seems to have declined. Drivers refused short trips and trips to poorer parts of town more often. Airports became a sort of bazaar.

Why did this happen? Some economic models of the traditional taxi industry suggest that it has pervasive information asymmetries. In the absence of set prices, consumers don’t know how much a standard ride will cost, and may not want to haggle with drivers. Riders and taxis also face high search costs, especially in relatively low-traffic areas. Another peculiarity of the taxi market, related to search costs, is that excess supply (in the form of vacant cabs) can affect demand. Intuitively, if consumers have difficulty finding cabs because cabs are scarce, they may tend not to search for cabs.

Uber has solved both problems, at least for the wealthier users who can utilize it. It dramatically reduces search costs, and its standardized rates prevent price gouging. It also solves a collective action problem among telephone-dispatched drivers. A potential client may take another vacant cab that passes by, and a cab headed toward a call may pick up another fare on the way and never arrive. Under Uber’s watch, though, riders trust that their cars are going to arrive, and drivers can’t take one another’s fares. +1 for private regulation.

None of this means, however, that regulators should allow Uber to continue competing directly with traditional taxis. Regulators should also keep in mind what Uber means for drivers, and what it means for the poor.

First, on the poor. Badger notes that the basic tradeoff within the cab sector has long been restricted entry in exchange for equity-oriented regulations. Medallions grant an exclusive license to operate, but drivers must follow a fare schedule, accept short trips, and not discriminate on the basis of race or neighborhood. Badger also notes that the current structure of the industry—in which drivers lease cars from medallion owners or medallions management companies—actually exacerbates some of the problems faced by the poor in getting...

Via Concurring Opinions

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