Continuing Conversation... Michael Munger on the Sharing Economy

EconTalk Extra
by Amy Willis
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Michael Munger on the Sharing ... D. G. Myers on Cancer, Dying, ...

This week, Russ welcomed back Mike Munger for his 26th appearance on EconTalk! Their topic of conversation- the rise of the sharing economy.

We're interested in your experiences in the sharing economy, as well as your reaction to our Extra prompts this week. Respond to them here at EconTalk, start a conversation over dinner...it's up to you. As always, we love to hear from you.

Check Your Knowledge:

1. Munger suggests there are (at least) three reasons why the sharing economy is, in fact, a big deal. What are these reasons? Which is the most (or least) persuasive, and why?

2. Roberts is very optimistic that taxi drivers will not be successful in using the regulatory process to stop Uber. What is the basis for his claim? Do you agree?


Going Deeper:

3. Munger argues that if the value of taxi medallions falls to zero, compensation may be due, and a failure to provide it might constitute a violation of due process. Explain how this could be the case, and to what extent you agree.

4. Why is ticket scalping "like a two-way tariff," according to Munger? How is ticket scalping like Monkey Parking? Should ticket scalping be legal? Why or why not?


Extra Credit:

5. Recently, Russ spoke with Charles Marohn about his Strong Towns organization. Many of the characteristics that Roberts and Munger see as developing with driverless transport sound like those that Marohn advocates in his work. If you were the C.E.O. of Uber or Lyft (or any of the other ventures discussed in this week's episode), what might you propose to Marohn as a partnership opportunity? How would your partnership make your town "stronger"?

Comments and Sharing


CATEGORIES: Extras (19)

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COMMENTS (16 to date)
James writes:

Hi Russ - It was ironic to hear you and Mike praising Uber's surge pricing model and then see this in today's NYT. Any comment? It feels political and was presumably done by Uber under duress or as a concession.

**

New York's attorney general said on Tuesday that he had reached an agreement with Uber, the car-summoning start-up, that would limit the cost of using the company's service during emergencies.

The start-up, which allows users to hail a private car service with a smartphone, relies on what it calls a surge-pricing model; the cost of rides increases during periods of high demand. Surge prices can often reach two to three times the normal cost of an Uber fare.

The new agreement, according to the attorney general's office, would cap Uber's surge prices during "abnormal disruptions of the market," typically citywide emergencies, in accordance with the City of New York's law against price gouging, passed in 1979.


http://bits.blogs.nytimes.com/2014/07/08/uber-reaches-agreement-with-n-y-on-surge-pricing-during-emergencies/

jon writes:

I thought Mike's 'due process' argument probably falls apart pretty quickly. Any increase in medallions theoretically causes a reduced value for all other medallions -- so if there were a property right to the value of the medallion, Cities would be sued for every new auction by current holders. I doubt any driver has a legal property 'right' to expect the city to act in a way that preserves the value of the medallion.

A topic I thought Mike might cover more was the potential risks of room-sharing toward outside parties. Both Mike and Russ said they were amazed that owners and 'guests' seemed to accept some risks in these transactions. But what about the risks to outsiders? If you move into a residential apartment or neighborhood, what happens when a neighbor advertises his house for out of town bachelor parties? Or doesn't enforce a maximum number of guests policy?

"Sharing" technology solves utilization problems. Uber's software reduces risk compared to the default taxi situation (compared to the uninformed pedestrian raising his hand on the street corner). But I'm not sure all other 'sharing' services are risk reducing.

WP Knabe writes:

You expressed surprise that a consumer would get a ride from a "complete stranger," yet that is exactly what getting into a cab is. What is the difference? The State would have you believe the regulated cab is safer/better. But my experience is the exact opposite. I have had plenty of bad cab experiences. In fact, I expect a bad cab experience. However, I have only had good Uber experiences. The private regulation of Uber is far superior to the state regulation of the taxi industry.

[broken link removed (error in html). Please check your urls when previewing your comments.--Econlib Ed.]

Michael Bale writes:

Excellent podcast this week Russ! One thing, though - I don't think you have to get all the way to driverless cars before you start to see real substitution of car ownership.

As a 29 year old living urban CA cities (LA, SF) it has been a serious conversation in my household in the last couple weeks whether my wife and I need two cars or just 1+Uber.

Economically, it starts to actually make sense when you consider the cost of the car payment, insurance, gas, registration, parking, parking fines/tickets, etc. Not to mention the the non-monetary costs you allude to such as parking anxiety, non-productive time spent driving, etc.


This article lays the groundwork for a comparison between the economics of Uber vs car ownership and suggests that by switching to Uber you could conceivably save enough money to afford ~900 UberX rides per year at current rates more than enough for most transformation needs if you're smart about which trips to take with the service.

http://blog.uber.com/2013/03/04/economics-of-car-ownership/


Anecdotally, talking to Uber drivers I've heard stories of others actually taking this route already (i.e. some people have ditched cars and use Uber exclusively). So I think this trend may have already started.

Carter Ferrell writes:
2. Roberts is very optimistic that taxi drivers will not be successful in using the regulatory process to stop Uber. What is the basis for his claim? Do you agree?
This bullet-point serves as an excellent intro to a deeper thought of mine on this subject. Let's put aside Uber for one moment and just consider the software.

Now, imagine that the software for a ride-sharing service is established under the principles of a p2p encryption network such as Bitcoin. There is no central body to operate the service as a corporation; the network is powered by the users and providers of the service.

Cities such as New York wouldn't be able to pursue legal avenues to shut down the service; their only remedy would be "bug squashing" drivers one by one. There is no legal victory to be won, only a war of attrition that can't be won at all.

Thoughts?

My2Cents writes:

In response to Question 3, I doubt Munger is right.

The takings clause of the Bill Rights states:

"nor shall private property be taken for public use, without just compensation."

Assuming that a non-physical taking can be a "taking" for the purpose of the takings clause and thus an economic loss alone can qualify as a "taking", I doubt that a taxi medallion qualifies as "private property," which is an essential requirement of the takings clause.

As a Munger said, a medallion is a license granted by a municipality. I assume that a person must meet certain regulatory eligibility requirements to receive a medallion and the municipality can revoke a medallion under certain circumstances. If so, a medallion does not seem to be "private property." It's a municipality-granted license.

Also, allowing competition by Uber does not seem to be a "taking." The municipality is not denying the use of a medallion or even denying the scope of the use of a medallion. Rather the municipality is accepting new technology generated by a private market. So, the economic loss to a taxi driver is due to new technology available, not government action.

The medallion question raises the issue of whether the "takings" clause should be limited to a physical taking and that mere economic loss should not qualify as a "taking." If economic loss alone is a taking, then the "takings" clause becomes more difficult to apply because nearly all regulatory changes result in economic losses to some market participants. Thus, allowing economic loss alone to constitute a "taking" will result in varied court decisions that are difficult to reconcile and thus generating more litigation. In contrast, limiting the "takings" to a physical taking creates a bright line rule, and thus, it creates more stable expectations about what is and is not a "taking," which would reduce resources allocated to litigation that could be allocated to (presumably more valuable) economic activities other than litigation.

Drew Yallop writes:

#3
It will go through as a Coasian bargain. It is no different than the railway/farmer case. As in the railway case it is a state regulation that has created the externality I.e. The state gave the railway the right to pass by the farmer.

A further political economy thought would be an analysis of the future cost to the state of enacting regulatory legislation today. Do politicians really consider how a regulation today could be disrupted by technological innovation in the future, one that will force them into Coasian payouts?

Jonathan writes:

I've been an EconTalk listener for years but this is my first post. I'm 32 y/o living in DC and after owning a car for years in Seattle and L.A., I no longer own one using DC's metro subway, buses, taxis, and yes surely Uber. I LOVE not owning a car, on financial and stress grounds. So nice just not to worry about it.

One irony of the taxi vs uber fight: recently there was a big anti-Uber demonstration by taxis in downtown DC. I needed to go to the airport mid-day and oddly there were no taxis at Dupont Circle. Eerie even. I didn't know of the protest but regardless I just pulled up Uber and my issue were solved in 3 minutes.

And, last thing, at minute 54 Russ playfully said that a nice thing about Uber vis-a-vis the show's guest offering a ride to others is that with Uber you don't have to talk about economics. Well, recently I had a part-time Uber driver who has recently started his own business unrelated to Uber. And he and I had a fabulous discussion on microeconomics. :)

Looks like the game is afoot for real in NYC. The Taxi and Limousine Commission throws down the gauntlet;

"I don't think the drivers understand the risk they're taking when they sign up to be a Lyft driver," said TLC Chairwoman Meera Joshi.
"It's a scam, really. They could lose their cars and it'll cost them a lot of money. And I don't think that Lyft is being completely candid about the risk that the driver—not the out-of-state company—is taking."

And Lyft says, Fine by us;
Lyft has pledged to compensate its drivers for any fines or costs related to regulators seizing their cars, said John Zimmer, the company's co-founder and president. Lyft raised $250 million from investors in April.

Adam Casey writes:

I have a predictionbook page set up over Russ' prediction. Do you think he's right? How sure are you that “In the next 20 years driverless cars will be a reality, there won't be any cab drivers.” Find it at http://predictionbook.com/predictions/25995

Sal COllora writes:

At one point it was said that Uber is mostly made from open source software. Their algorithm is probably one of the most valuable pieces of their IP. I don't know if Mike was speaking tongue in cheek, but clearly their secret sauce is not open source.

casey writes:

# 1 - Airbnb has 3 options.
Entire Place or Private Room or Shared Room
I believe the vast majority of revenue for Airbnb comes via rentals of Entire Place.
(Airbnb has been killing VRBO and Homeaway, which were the original inovators in this space)

# 2 - Most Airbnb rentors (especially entire place) I believe do pay taxes. It is very easy for localities that depend upon occupancy taxes to check into whether rentors are paying tax. (the lists of owners are all organized on a few websites)
I collect and pay State, County and 'Local' tax as an owner on VRBO and Airbnb

Bogart writes:

In Monroe Louisiana, The cab for a 13 mile ride from the airport to my place of business costs $27 or over $2 per mile. I think that Uber and the others are here to stay and I love it. I have not used Uber and rarely travel without renting a car. In the few cases where I have needed a taxi service, the taxi service is horrid like the service from any government sponsored monopoly.

JonP writes:

One of those most striking things to me about sharing economy was better asset utilization.

But it raises a question I can't get my head around. Take the case of cars--Uber and, eventually, driverless cars will make better use of a high-value asset that many Americans own. So, assume it dramatically reduces times that cars everywhere sit idle and thus reduces overall car ownership. How is that "improvement" in asset utilization reflected in conventional economic measures? (Companies making cars get hurt, workers out of a job, GDP lowered, etc.)

If you apply that scenario to a small, substitence farming village, I can see if, for example, an improved plow comes along, everybody's crops increase, everyone has more time freed to defend the village, build irrigation ditches, etc. But in our complex economy, I don't see how these types of productivity improvement translate into improvements in quality of life.

Jason writes:

The self driving cars being hailed on demand through a service would really change cities. I think a better visualization of this than the 5th element is the minority report. The vision presented of a futuristic highway/interstate I think matches your description.

Thanks,
Jason

Hi,

I have been a fan of your podcast for a long time, and I must say I really enjoyed this episode. So much so, that I decided to come and post a request for you to look at Nunes and Downes' Big Bang Disruption book.

The episode in question had so many common threads to their book and you guys clearly enjoyed it so much, that I figure a chat with one of the authors of big bang disruption is in order.

http://www.amazon.com/Big-Bang-Disruption-Devastating-Innovation-ebook/dp/B00DMCUWW4

Thank you for all the wonderful discussions over the years. Keep it up please! (walker and all)

Roberto C. Serrano

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