In: Economics
Please complete an economic analysis of the specific government policy Ride-Sharing Regulations.
Include the following:
Economic justification for the policy
Impact, both intended and untended, of 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
Brief forecast of what you believe the next five years will look like for the policy and its impact
Paper Requirements:
Paper should be 8 pages in length.
Please include an outline or table of contents
Please incorporate references
****Please note this work must be original not being copied from any source or any previous publication****
Answer:-
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
.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.