Monday, March 28, 2016

"From Regulating Uber to Subsidizing It"

From Reason, March 14, 2016:
On March 21, the Orlando suburb Altamonte Springs is starting a pilot program that pays for part of riders' Uber fares. This misguided year-long initiative has a budget of $500,000 and will cover 20 percent of each fare for rides within the city's limits and 25 percent of each fare for rides that start or end at mass transit stations.

Altamonte Springs is not alone in its push to subsidize Uber. Pinellas County in the Tampa Bay area just started a pilot program that pays up to $3 per trip to riders who take Ubers or taxis to bus stops. While the intentions behind both of these localities' subsidies are to increase access to government-provided transportation, subsidizing Uber—and taxis—is an expensive, pointless, and distortionary mistake.

University of Chicago economics professor Casey Mulligan told me, "A subsidy creates two prices: one that riders pay and the other that Uber receives." In other words, though consumers may see a lower price, the difference between the discounted price and the full cost of a ride must be paid by someone (usually taxpayers). Additionally, subsidies push prices up by making it appear that prices are lower and artificially raising demand (see the cases of subsidies for student loans, sugar, film, and professional sports stadiums, just to name a few). These effects could lead to an outcome that simply transfers funds from taxpayers to Uber, with little effect on riders' fares.

Yet, support for Uber subsidies continues to grow. This is likely because the so-called "last mile" problem of how to get to and from a mass transit system has plagued mass transit since its inception, leaving many residents underserved by existing options. Ridesharing has the potential to solve this problem, and proponents of subsidies argue that paying for Uber rides is the most cost-effective solution.

Uber has already helped to solve the last mile problem—without any taxpayer assistance. Last year, Uber released a case study of its effects on Chicago's mass transit system. The study found that, "Chicago's public transit system provides frequent, efficient, and convenient service across the city, but it only goes so far. Uber offers residents of areas underserved by public transit a reliable and fast link to public transportation, effectively expanding the coverage of existing transit networks."

This experience is not unique to Chicago. Out of all the Uber trips in Portland in February 2015, 25 percent started or ended within a quarter mile of a mass transit station. A similar trend was seen in Austin during a summer 2015 analysis of the city's Uber trips....MORE