Reblogged: Why Economists Love Uber (And Bernie Should, Too)

7:31:00 AM

Over the summer of 2015, senator and presidential candidate Bernie Sanders said that he had “serious problems” with ridesharing company Uber because it was “unregulated.”

Indeed, Uber is relatively unregulated in comparison to traditional taxi services. Economists Judd Cramer and Alan B. Krueger note, 

In many jurisdictions, taxi drivers are required to obtain an occupational license in order to transport passengers, and drivers are restricted from picking up passengers outside of the jurisdiction that issued their license. In addition, the number of taxi drivers is often limited by the number of medallions that are issued, and fares are often set by regulatory bodies.

In contrast, Uber and companies like it, which use mobile apps to connect drivers and passengers, are largely not bound by these regulations. But, contrary to the concerns of Sen. Sanders, lack of top-down regulation hasn’t undermined the quality of Uber’s services — it has enhanced it.

Rather than having prices fixed by city governments, the app determines the price of a ride on the basis of time and distance traveled. It also incorporates “surge pricing” to help match supply and demand when requests for rides (at the normal rate) outstrip the number of drivers available in the area. Drivers from elsewhere are incentivized to go to the places where demand is highest, bringing things back into equilibrium. Eighty percent of top economists polled by the IGM Economic Experts Panel agreed that this strategy increases consumer welfare by increasing the supply of Uber services rendered and allocating rides first to those who value them most.

In a recent article, Hall et al. (2015) examined how the marketplace reacted to the presence or absence of Uber’s surge pricing. They were able to do this by exploiting the fact that a technical gli...

This article was originally posted at Articles from FEE

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