Question

Please complete an economic analysis of the specific government policy Ride-Sharing Regulations.

Please include what is permitted of the following:

• The economic justification for the policy

• How the global environment interacts with the policy

• Role of technology

• Impact on resource market from the policy

• Public Choice analysis of the policy

****Please note this work must be original not being copied from any source or any previous publication****

Answer 1

In recent years, ride-sharing services such as Uber, Lyft and others have gained immense populatirty. The convenience and cost-effectiveness offered have made them the choice of inter-city transport for many. But this has affected the local economy in the cities and has made it difficult for regulators to effectively fit ride-sharing into existing structures. To solve this, the regulators often come-up with or update new regulations for ride-sharing platforms. This analysis will focus on the same regulations.

• The economic justification for the policy- Any economic justtification for a policy depends on the fact, for the most part, that whether the regulation is increasing the overall surplus (consumer+producer) and is it making sure that supply and demand are controlled in such a way that they are in equilibrium. Of course there are many moral, safety and other justifications for regulations but they are not economic in nature.
  Now as far as ride-sharing is concerned, the companies often have a 'surge-pricing' model, where the price is adjusted according to demand. It is basically a live example of supply and demand curves intersecting and deciding price. If implemented correctly and fairly, this should ehance the total surplus. The job of the regulations should be to make sure that it is implemented correctly and that in some special conditions, this is not abused. For example, to make sure that in case of an emergency such as natural calamities etc., this does not reach exhorbitant prices.
  There are other economic justifications for the policy, and while they are not strictly supply and demand or surplus based, they are also important. These include the impact of ride-sharing on taxis, the impact of ride-sharing on jobs market as many low-paiying jobs might lose workers as they might move to ride-sharing etc. Although in case of ride-sharing impacting taxis market, it will be a better idea to deregulate taxis market than regulating ride-sharing market, thus creating a level playing field. They should remove barriers to entry and remove arcane regulations there to make them more competitive to ride-sharing.
• How the global environment interacts with the policy- Since most ride-sharing companies rely heavily on technology and do not manufacture anything, they need very little infrastructure. This makes them much more 'global' than many other companies. This has its own unique opportunities and risks, as far as the global environment is concerned. On one hand, it makes it much easier for them to enter new markets and grow quickly. So if regulations affect business on one country, they can think of entering new markets relatively quickly. But the other side of the regulations part is more important. And that is the fact that this very nature of being agile and not really having all that invested in one particular country, makes them an issue for local government since little investment also means lesser jobs and lesser returns to the local economy a lot of time. Given the rise of protectionist movements across the globe (Brexit, Trump), it is likely that ride-sharing companies might be hit with stricter regulations in many countries which consider them a foreign company affecting their local taxi economy.
• Role of technology- The new technologies such as smartphones etc have resulted in much faster and smoother interactions between the consumer and the suppliers, resulting in much lesser information asymmetry between them. This results in better price equilibrium. It has also helped in efficiency as the prices can be changed instantly and the customer can be informed of the same too.
  As far as regulations are concerned, the same technologies provide and opportunity. The government can mandate tracking information for the cars, recording of footage in case of an accident, can mandate that driver criminal record information be provided to the customer before boarding and more. On the other hand, the regulations on the taxi-side should encourage the same technological enhancements to not only create a level playing field but also to make them safer and better and hence more attractive to the customers.
• Impact on resource market from the policy- We touched this briefly in point one. Ride-sharing affects the resource market in mainly 3 ways- it affects the livelihood of taxi-drivers as some of them might loose their jobs or move to ride-sharing business. It affects other fields which have equal or lower pay than ride-sharing. Finally, since ride-sharing companies maintain that their workers are part-time employees or contractors only, the drivers often do not have the same safety nets that a regular employee might have. Thus, in case of any sudden change in policy or shut-down of the company, a sudden release of many unemployed workers in the market might affect it drastically.
  Regulators should keep this in mind when drafting regulations for ride-sharing. They should make sure that the drivers have some safety nets. They should also make sure that the ride-sharing is not affecting other jobs market in such a way that it reduces the larger economy.
• Public Choice Analysis of the policy- Public choice theory is the use of economic tools and concepts, such as utility maximization, to study and predict political behaviour. This assumes that most people, including the regulators in our case, are driven more by self-interest than the greater good. So what would a regulator do if he/she was driven more by self-interest rather than greater good? One way to look at it is that if the regulator is a politician, he/she would look at what gets more votes. Are the taxi unions and drivers a big vote-bank? Then that would result in stricter regulations, even at the cost of economics. Or is having ride-sharing important for the general public who constitute much larger vote share? Then fewer regulations would come.
  Assuming that the regulator in our case, as mostly is, are bureaucrats and administrative officials. They are mostly driven by the need of having more power/budgets for them and to keep the ultimate bosses, which are often politicians, happy. To have more budgets and power would require them to regulate ride-sharing more strictly, for which they can then demand more budgets/resources and legal power to regulate. This will then interplay with what the politician wants, as discussed above, and then the final outcome would be decided.
  In current environment the policy is to regulate ride-sharing platforms more than in the past, at the same time not regulating as much as to impede their operations at all. This clearly shows that while the regulators are looking for more control on the ride-sharing companies, they are also keeping in mind that banning/highly strict regulations would affect the politicians and hence those are not being done.