Tag Archives: uber

Was taxi deregulation a failure?

Catherine Rampell has a new opinion piece claiming that taxi deregulation is bad for consumers, doubling down on a previous piece in which she made the same claim. The lesson she draws from this is that Uber will eventually be bad for consumers as well.

Her first post was written in response to an IGM Chicago panel of more than 40 leading economists asked to respond to the following statement:

Letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare.

The ideologically diverse panel unanimously agreed.

 Her first post didn’t include any sources that contradicted the panel, but her more recent one included links to three papers: one from a taxicab lobbyist group, one written by city planners for the Department of Transportation, and one by a McGill law professor. All three said taxi deregulation was bad for consumers.

 According to Rampell, allowing Uber and Lyft is really a repeat of earlier,  failed attempts to deregulate the taxi market, and, according to her three sources, we should expect the same, allegedly bad outcomes. She suggests cracking down on ridesharing services with taxi-style regulation.

 Using a paper from a lobbyist might suggest she’s scraping the bottom of the academic barrel, and raises a question: is Catherine Rampell accurately conveying the research on taxi deregulation?

 The short answer is no, at least if you’re interested in what economists say. According to a literature review conducted by Adrian Moore and Ted Balaker, the majority of economists working on this issue think taxi deregulation is a good idea, and has worked out well in practice.


In addition,  the primary problem she raises on her own is the exact one ridesharing applications address:

“…fares were relatively opaque and unpredictable; and consumers were reluctant to price-shop or interrogate drivers about their insurance and safety records. They just hopped into the first available cab.”

Uber and Lyft make money because they are able to easily pair drivers and customers, establish fair rates, facilitate payment, and ensure safety and insurance.

The conventional wisdom that taxi cartels decrease consumer welfare and competition makes things better seems to be right. It’s probably why so many people enjoy ridesharing services.

D.C. cab strike wasn’t designed to win over customers

D.C. cabbies don’t have a great reputation when it comes friendliness, courteous driving, or car maintenance. Hailing a cab sometimes means riding in a beat-up, dirty car driven by a rude person on a circuitous, fare-maximizing route. Customers have taken notice, and have flocked to upstarts Uber and Lyft as soon as they were given a chance for exit. 

Drivers don’t like competition from car services with better booking options, newer cars, nicer drives, and better regulations, and they want our local politicians to know. So the cabbies did what they thought would best serve their interests: massively disrupt downtown traffic for hours as part of a “strike.”

The disruption didn’t go over well the public,  and generated lots of bad press on Twitter.

A similar cabbie strike in London–just two weeks ago–completely backfired, and increased Uber membership in the city by 850%.

Why would cabbies expect to fare better here in the states?

They probably didn’t. D.C. cabbies and cab companies aren’t trying to win over customers at this point. Instead of improving their business model to better compete with the new ride-sharing services, they want politicians to use regulations so that you can’t choose something better than a D.C cab.

You might be an Ubertarian

Over at Housing Complex, Aaron Wiener pokes fun at what he calls “Ubertarians.”

These are people who “support government regulation—except when it inconveniences them,”  “love public transit, especially the not-so-public kind,” “hate meddlesome neighbors, but will eagerly meddle themselves when riled up,” “vote Democratic, but they kind of love Pat Mara,” and “hate the Height Act.”

I don’t closely follow electoral politics, so I won’t comment on the Pat Mara part aside from the obvious point that nearly everyone in D.C. votes Democratic.

Since Aaron asked readers to add traits to the Ubertarian archetype, here’s my list:

1. They can distinguish pecuniary externalities from real externalities. 

A real externality is a cost that falls on a third party from a transaction, such as pollution from a factory or the effects of second-hand cigarette smoke. That is, the externality is real in the sense that it usually involves some kind of physical or non-price resource like air, pollutants, noise, light, or damage to property.  When costs are borne by third parties–rather than those involved in the transaction itself–the economy as a whole is less efficient, and life is less fair. Standard economics teaches us that the government should intervene with a tax, fee, or other regulation to address the problem.

A pecuniary externality, on the other hand, operates through the price system and doesn’t cause a loss of efficiency. It also doesn’t result in an unfair situation. For example, if your neighbors discover that Vietnamese food is delicious and purchase it more often, the price of phở can increase. This increase in price converts consumer surplus to producer surplus. It could be argued that consumers are worse off after the change, but that loss is offset by a bonus to the producer, who receives a benefit for providing a product that consumers like.  Most people would say this kind of externality is fair, and standard economics teaches us that the government shouldn’t intervene to correct it.

Another example of a pecuniary externality could be loss of income for taxi drivers caused by the market entrance of a new company that provides a better service and doesn’t do bad things like refuse to pick up black or disabled customers.

2. They can distinguish between consumer protection and rent-seeking.

Ubertarians probably appreciate that it’s illegal to drive passengers in an unsafe car, or hire someone who doesn’t know how to drive. But that’s already illegal because driving itself is a highly-regulated activity. Ubertarians realize that some regulations, like the D.C. Taxicab Commission’s attacks on UberX, are really about protecting cabbies from competition.

3. They probably aren’t libertarians.

Most District residents who like Uber, who opposed the silly proposed liquor license moratorium, and who want to abolish the height limit are progressives. But that doesn’t mean that they are gullible enough to think that every ban or regulation that comes through the pipe is a good idea. Nor should it.

In the end, Ubertarians might not actually exist. But, if anything, Aaron Wiener sounds a bit like an Ubertarian himself!