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Commentary By Jared Meyer

DC Uber Regulators Shouldn't Listen to Elizabeth Warren

Economics Regulatory Policy

A new Mercatus Center paper entitled “Rethinking Taxi Regulations” suggests that antiquated taxi regulations do not apply to today’s economy.

This conclusion stands in stark contrast to statements by Democratic Senator Elizabeth Warren. Referring to the decision of Uber and Lyft to leave Austin, Texas after the city upheld burdensome ridesharing regulations, Warren claimed that the companies are fighting “against local rules designed to create a level playing field between themselves and their taxi competitors.” In other words, Warren wants to make Uber more like taxis.

This single-minded way of thinking is all too common among proponents of increased regulation. What they fail to realize is that there are two ways to “level the playing field.” The first is by placing outdated, stifling regulations on innovative business models. The second approach is removing existing barriers to competition and allowing existing businesses (such as taxis) to better compete with new services (ridesharing).

The Washington, DC, Department of For-Hire Vehicles is considering changing the way it regulates the local taxi and ridesharing market. The DFHV should ignore Warren’s recommendations and instead permit taxis to become more like Uber.

Common models for taxi regulation can be traced back to the 1930s. During that time, regulations were promoted to combat what economists refer to as “asymmetric information” problems. These arose from passengers’ relative inability to know about the quality of various for-hire vehicle drivers. Additionally, passengers could not easily compare the costs of for-hire transportation options since taxis were usually found by waiting on the side of a road. These limitations led to regulations such as driver licensing requirements (an attempt to ensure universal quality) and common prices (so that consumers knew what they would end up paying).

While stringent taxi regulation may have made some sense in an earlier era, its justification does not apply to today’s ridesharing market.

Ridesharing services, similar to other sharing-economy companies, use dual-feedback systems. These features, which allow riders and drivers to publicly rate each other after trips, give passengers the ability to vet potential drivers. Ridesharing companies also have the option to cut ties with drivers who do not meet certain customer-service standards. Since ridesharing prices are advertised ahead of time before a ride is prearranged (with leading firms even offering fare estimates), set price regulations no longer make sense. This consumer-driven model of regulation has shown itself to be superior to inflexible government mandates. How can a single regulatory body improve on the information provided by a diverse group of customers?

Though taxi regulations were meant to protect riders, they also protect established companies from competition by creating high barriers to entry. Driving with ridesharing services requires little up-front costs besides having access to an approved vehicle, whereas starting work as a taxi driver in Washington, DC, is expensive. The authors of the Mercatus paper, Michael Farren, Christopher Koopman, and Matthew Mitchell, identify 33 separate regulatory procedures and between $2,000 and $2,700 in required expenses.

Until Uber and Lyft came along, all these barriers to entry led to a lack of competitive pressures—and customer service in the taxi industry noticeably suffered. Competition allows companies to differentiate themselves through the type, price, and quality of services they offer. Rigid regulations that dictate the means companies are able to use to meet customers’ needs can create a one-size-fits-all standard. And this standard limits competition and freedom of entry.

A better way forward for Washington, DC—if policymakers must apply regulation to new business models such as ridesharing—is to specify certain areas of concern (advertised prices, prescreening for quality and safety), but leave companies free to figure out how to meet these requirements. This approach would require large-scale deregulation of the District’s taxi services, a welcome development.

As I argue in my recent Encounter Books monograph, Uber-Positive: Why Americans Love the Sharing Economy, policymakers often fail to realize that a 21st century economy cannot flourish while it is under the thumb of outdated laws and regulations . Economies grow through a dynamic process that necessitates change and disruption. Forcing new business models to comply with rules that were written decades ago is no way to promote a dynamic transportation market or economic growth. Policymakers in Washington, DC and other localities should remember these realities as they craft their regulatory responses to ridesharing.

This article originally appeared on Forbes.

Jared Meyer is a fellow at the Manhattan Institute for Policy Research. Follow him on Twitter here

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