The taxi market in most American cities is an economists’ nightmare. By placing a cap on the number of tax medallions, most cities artificially constrain the supply of taxi services, raising prices for consumers and causing deadweight loss, and economists hate deadweight loss. Services like Uber and Lyft and Sidecar, by effectively expanding the supply of taxi-like services to fit market demand, solve that particular problem.
Economists explain why they love Uber so much
Dylan Matthews was a senior correspondent and head writer for Vox’s Future Perfect section. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.
So it should serve as no surprise that when the Initiative on Global Markets at the University of Chicago’s business school asked its panel of 43 eminent economists if “letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare,” all 40 who replied said yes:
(IGM / University of Chicago)
Most were very enthusiastic about the services, in fact. “I don’t see any externalities,” Harvard’s Oliver Hart noted. “According to standard economics, competition enhances welfare and I believe that would be true here.” Yale’s Judith Chevalier noted that the introduction of Uber has been “pretty much the same as removing the cap on the number of medallions.” Anil Kashyap of the University of Chicago argued their entry has still more benefits besides easing supply restrictions: “They innovate: e.g. knowing the rating of the driver who will come and having an easy way to find a lost phone after you take the ride.”
Of course, economics professors tend to be in the socioeconomic class that uses Uber the most. Former Obama administration chief economist Austan Goolsbee, now at Chicago, jokingly appealed to its personal usefulness in his reply. “Yes. Yes. A thousand times yes,” he wrote. “Instead, try calling for a cab on Saturday night from the south side of Chicago and see what happens.” Stanford’s Robert Hall “strongly agreed” that Uber helps consumer welfare, but disclosed that his son works as an economist for the company.
A few other replies drew cautionary notes. Chicago’s Michael Greenstone noted that “part of the gain in consumer welfare … comes from undermining property rights of taxi medallion owners.” Chicago’s Richard Thaler argued that Uber “needs to be careful about surge pricing in emergencies” as “people care about fairness as much as efficiency.” Larry Samuelson at Yale wrote that Uber and Lyft “will not be a Pareto improvement for consumers” — that is, they will not benefit or leave the same all consumers; some will be left worse off. Samuelson’s reply didn’t get into why he thinks this will be the case.
It’s also worth remembering that the phrasing of the question elides the issue of whether Uber and Lyft really are on “equal footing regarding genuine safety and insurance requirements” with taxi companies. Taxi firms would argue that car-sharing services are, in practice, subject to laxer requirements in those areas.
Thanks to Justin Wolfers for the pointer.
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