Aug 16, 2018

New York’s Misdirected War on Ride-Sharing Will Only Hurt Consumers

Residents in dense cities like New York need all of the transportation options they can get. Unfortunately, a recent move by the city government leaves New Yorkers bereft of innovative ride-sharing options for unconvincing reasons.

In late July, the city’s council announced an unprecedented new effort to place a limit on the number of ride-sharing cars that could legally operate within the city. Officials say that they are targeting companies like Uber and Lyft out of concern for city congestion and worker welfare. But upon closer scrutiny, both of those justifications fall flat.

Few dispute the notion that companies like Uber and Lyft provide a great benefit for consumers. They can often be a much cheaper option than traditional taxis, which sometimes come with onerous fees and licensing requirements, like New York City’s infamous medallion system. They can bring great safety benefits as well, and some studies have suggested that the introduction of ride-sharing services have decreased the rates of deaths and arrests due to inebriated driving.

Ride-sharing services are often faster and “smarter” than taxis, too, with consumers having the convenience and peace of mind of ratings systems and in-app tracking to know exactly where your driver is. Taxis, on the other hand, require a rider to either wait and hail one down—which may pass them by due to racial bias—or call a transportation dispatch center which will direct a driver to your location.

These services are particularly beneficial to the New York City area, where access to affordable transportation can be as elusive as it is critical to go about one’s day. Indeed, the market response suggests that Uber and Lyft were a welcome innovation in the Big Apple: As of 2017, the number of ride-share drivers outnumbered traditional taxis 4 to 1.

But city officials are far less hospitable to this popular service. Following a failed attempt by the de Blasio administration to impose similar caps in 2015, the City Council is proposing a complete freeze on all non-wheelchair-accessible vehicle licenses and a separate minimum wage for drivers.  Council speaker Corey Johnson stated that the goal is to “protect drivers, bring fairness to the industry, and reduce congestion.”

Notice that he did not say anything about consumer welfare, perhaps because consumers will obviously be made worse off by these policies. Freezing the number of drivers on the road will lead to longerwait times and higher fares.

The minimum wage plan—which calls for ride-sharing companies to subsidize driver incomes should they fall beneath a minimum threshold—attempts to bring the transportation sector in line with the state’s broader push for a $15 minimum wage. This policy, like minimum wages in general, will benefit incumbents at the expense of new entrants, who may be priced out of the market. So this plan is more about protecting some drivers than “drivers” writ large.

The claim that these policies will meaningfully reduce congestion is similarly dubious. To vet this contention, we can look to a report commissioned by the mayor’s office in 2016. The study shows that city congestion started to creep up in 2010, before the advent of ride-sharing, and continued to climb until 2015. There is no significant uptick in congestion after ride-sharing became more pronounced in the last decade. Rather, increased pedestrian traffic and tourism—arguably good “problems” to have—are the real culprit.

Will limiting ride-sharing significantly improve the congestion picture? It is doubtful. Instead, policies that improve the affordability and accessibility of substitute transportation options, like public transit, may do more good.

There is another reason that the New York City Council might seek to crack down on ride-sharing companies, and it has little to do with congestion. Money raised through the sale of taxi licenses constitutes a significant bulk of the revenues generated by the city’s Taxi and Limousine Commission each year. Once a hot commodity topping $1 million in value, the market price of a medallion has fallen beneath $200,000 since ride-sharing offered an alternative, and the city has halted plans to offer more medallions in response. So there is an element of self-interest on the part of the city as well.

There are better ways to balance the competing interests in New York City. As Mercatus scholar Veronique de Rugy outlined in her recent policy briefing, public entities can reduce congestion by creating a level playing field of user fees. Indeed, Uber itself has come out in support of road pricing as a solution to congestion.

While the cap on ride-sharing is more likely to punish select companies than reduce traffic, user fees and privatization can leverage market forces to lower congestion without discouraging innovation. This was the approach taken in São Paulo, Brazil. The city initially attempted to clamp down on ride-sharing in a harsh way like New York before they realized that a lighter-touch road use fee would alleviate concerns about congestion and revenue while leaving room for innovation. The results are promising, and New York should consider a similar approach.

Protecting all drivers, ensuring fairness, and reducing congestion are worthy goals. But a cap on innovative services will not achieve them. New Yorkers deserve the best transportation options available; they will only have them with full access to ride-sharing.

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