The sharing economy

In this week’s EconTalk podcast, host Russ Roberts talks to Mike Munger about the sharing economy (particularly companies like Uber and AirBnB). It’s very interesting. About the important issues, Munger says,

One is that this is sort of subversive to past rent-seeking victories by licensing and other competition-restricting groups. It’s a way of taking advantage of new technology that reduces transactions costs. And it’s a way of taking much more efficient advantage of excess capacity and resources that are now being underused. Actually I think the first of those is the sort of typical friction that you get as a result of innovations. And it’s the second and third that are important. And so it is a big deal, the fact that technology has made this possible. It’s really the second. It’s the technological change, the fact that we are now opening these big new vistas of interacting with each other, essentially in an impersonal way. So, one of the genius parts about markets is we don’t have to have detailed personal knowledge of the person we are doing a transaction with. So, that fact, combined with there’s always been this problem of excess capacity, means that we can reduce what until now have been deadweight losses. Now it’s true that the collateral damage is going to be people who, in good faith, invested in assets that the political process said, ‘No, no, we promise that we’re going to protect the value of these.’ But it’s always been that way.

During their conversation, they also talk about the future of driverless cars and briefly about “price gouging”:

If there’s a blizzard in New York, anyone who can either is taking a taxi or there aren’t any taxis. So somebody who is sitting warm and safe up in his room watching the news says, ‘Oh, man, it must be terrible to be out there,’ now is tempted to go out there himself because he can make $140 bucks for driving somebody two miles. So, when people are in desperate need of a ride, a lot more people show up. Now, it’s true that the reason they show up is to that they can make money. But if I’m standing there minute after minute and there are no taxis, it doesn’t matter that the price of the taxi I can’t get would be $7.

Coincidentally, yesterday Uber agreed to cap its prices in New York during emergencies. (Currently they use dynamic pricing dependent on demand, as mentioned in the podcast.)

And on Monday, the Seattle City Council repealed ride-sharing regulations it had passed earlier this year. The regulations had limited the number of ride-sharing drivers on the road. As Crosscut notes, the repeal “set the stage to consider a compromise proposal Mayor Ed Murray’s office recently brokered with representatives from ride-sharing companies and the traditional taxi and for-hire vehicle industry.”

The compromise proposal does not limit the number of ride-sharing drivers, but it does include licensing and insurance requirements for them. Additionally, “Taxi and for-hire licenses will transition to a property right that is similar to a medallion in other cities.”