October 03, 2014
In her Washington Post column Catherine Rampell raises an obvious but generally neglected point in discussions of Uber and Lyft. Many cities strictly regulate the number of taxis on the road with a medallion system. The cost of these medallions, which license someone to operate a taxi, typically run into the hundreds of thousands of dollars. Economists are prone to see this system as a form of protectionism, which is designed to increase the profits of the cab companies and perhaps to raise the wages of drivers.
This view is correct, however it doesn’t follow that we should necessarily want as many cabs on the road as possible. As I noted earlier this week, we may want to ensure that drivers can at least earn the minimum wage, which likely would involve some restriction on supply.
However there also is a very important environmental issue. The more cabs we have sitting around waiting for passengers, or worse driving through the streets, the more will be the emissions of greenhouse gases (GHG). The effect will amplified by the fact that cabs will add to congestion, slowing down traffic and causing other cars to emit more GHG. Also, as Rampell notes, lower cost and more readily available cabs will encourage people to use taxis instead of taking public transit, walking, or riding a bike.
These externalities can be addressed with appropriate carbon taxes and subsidies for public transportation, but we don’t have appropriate carbon taxes and subsidies for public transportation, nor are we likely to have them for the foreseeable future. Therefore, regulation of taxi services like Uber needs to take these externalities into account.
Failing to take these externalities into account is just bad economics, no matter how many prominent economists say otherwise.
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