Restrictions targeted at the newest road users are unfair and inefficient
For years, Bob has been driving around the city to get to work, run errands, and see friends. The traffic is sometimes bad, but given where he lives and the places he goes, it’s not practical to walk, bike, or use public transit. Luckily for Bob, many people don’t have cars, and can’t afford taxis. So they walk, bike, or use public transit, which keeps them (mostly) off the roads.
But then some “genius” comes along and figures out how to use smart phones to provide taxi-like ride-hailing service at lower cost and greater convenience, with hip names like Uber and Lyft. Traffic increases, and Bob’s daily travels get slower and more frustrating. What is Bob to do? Well, for many Bobs in US cities, it appears that the answer is to hobble the technology that has allowed all those other people to get around more conveniently.
After all, Bob says, he was here first, so the congestion isn’t his fault. He just wants to make his life great again.
That’s the reasoning behind a new law in New York City — and similar moves in many cities, including San Francisco — designed to reduce congestion by limiting the number of ride-hailing vehicles. There are other cons and pros of Uber/Lyft: They spend more time looking for addresses or stopping in traffic to pick up or drop off customers. On the other hand, they spend less time looking for a parking space, stopping in traffic to try to squeeze into a parking space, or occupying a parking space.
Still, the major complaint of drivers (and environmentalists) is that ride-hailing services have meant more cars on the road, and fewer people walking, biking, or using public transit. Some studies support this conclusion more than others, but it is very likely true to at least some extent.
Jennifer is one of those people who doesn’t have a car, and has been walking, biking, or taking public transit. Sometimes it’s pretty inconvenient. Uber/Lyft has definitely improved her life. Now, she even occasionally does things that weren’t practical before, like going to the other side of town to meet a friend for lunch. You know, the sort of things Bob has been doing for years.
So, please explain to Jennifer why she should not get to use the roads to go places with Uber/Lyft, but Bob should get to use them to drive his own car.
If you’re stuck, that’s good. Because there really isn’t a valid explanation. Bob can twist himself into a pretzel by arguing that Uber/Lyft is making less efficient use of roads or gasoline because sometimes the driver has no passenger, or by claiming ride-hailing drivers are less skilled, but there are no credible studies showing significant differences in these dimensions. In reality, Bob is just as much of the problem as Jennifer is.
Because the problem is not Uber/Lyft. The problem is congestion, which is an unpriced externality created by everyone travelling by car. Bob had a good run for a while. Only people who could afford cars and parking spaces were using the roads, so the congestion externality wasn’t too bad. Smart phones — which improved the technology for coordinating rides, and evaded some monopolistic regulation promoted by the taxi industry — have allowed a whole new population to use the roads in pretty much the same way that car owners have been doing for a century.
Just as with greenhouse gas emissions, for years we did not regulate or price congestion, because the problem just wasn’t seen as severe enough to merit government intervention. In the last couple of decades as congestion has increased, we have taken baby steps with high-occupancy vehicle (HOV) lanes and, more recently, pricing road usage for one or two lanes on a few highways.
But growing vehicle ownership, a strong economy, and now innovative ride-hailing business models have worsened congestion more quickly in many cities. The answer isn’t to prohibit new car ownership or to throw people out of work. And the answer isn’t to discriminate in favor of those who drive their own car over people who choose a ride-hailing service.
The answer is to deal with the problem directly. That means figuring out how to allocate this scarce resource – space on streets and highways – fairly and efficiently among the large number of people interested in using it. Economists have long argued, and demonstrated, that pricing congestion is a really good way to help society make the best use of crowded roads.
The money collected can be used to fund the government, improve roads, or can just be distributed equitably among all people. My definition of “equitable” would be to allocate more to low-income households who would have the hardest time coming up with the road payments. But your definition may differ.
If we are not willing to price road use, then we need to come up with another regulatory intervention that prevents inefficient overuse of the resource without arbitrarily favoring one model (car ownership) over another (car hire). Unfortunately, the track record for such non-price regulation of vehicle use – such as HOV lanes and odd/even license plate driving restrictions — is not all that good.
Restricting ride-hailing isn’t the answer. We shouldn’t make Bob’s driving life great again by undermining Jennifer’s mobility.
Severin Borenstein has no affiliation with, or financial interest in, any ride-hailing company. In fact, he drives his own car most places he goes. And he is still tweeting interesting energy-related articles/blogs/research most days @BorensteinS.
 There is also an important discussion about whether Uber/Lyft drivers are being exploited by the companies or are earning a decent income while enjoying very valuable flexibility in work hours. Recent research by a team of highly-respected economists suggest to me the latter.
Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business and Faculty Director of the Energy Institute at Haas. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. He chaired the California Energy Commission's Petroleum Market Advisory Committee from 2015 until its completion in 2017. Currently, he is a member of the Bay Area Air Quality Management District's Advisory Council and a member of the Board of Governors of the California Independent System Operator.