Local governments should not be regulating the ridesharing industry

By Mississippi Center for Public Policy
March 9, 2018

Transportation Network Companies (TNCs), like Uber and Lyft, entered the mainstream transportation services market in 2012 and 2013.

TNCs use smartphones to connect passengers with drivers and manage the exchange, reducing the transaction cost in multiple ways, thereby vastly expanding the potential market for transportation services. The emergence of TNCs motivated taxi special interest groups around the United States to try to use local governmental authority to protect their industry from this new competition. In response, Uber and Lyft lobbied state legislators to preempt local regulation of TNCs.

Mississippi enacted HB 1381 into law in 2016, creating a statewide regulatory standard for TNCs and preempting municipalities from enacting their own taxes, licenses, and regulations on TNC operations. This overruled Jackson, Mississippi, which had just passed an ordinance licensing and regulating TNCs, and other cities which had disallowed operations.

Taxi regulations are commonly enacted at the municipal level and are quite literally the textbook definition of how anticompetitive regulations harm customers. They are a perfect example of local policy historically creating barriers to entry (through limits on taxicab licenses), price controls (through maximum and minimum legal fares), and mandated business practices (requiring specific costly equipment and service standards). Because the transportation service industry is rife with regulatory capture that violates generality and free exchange, starting from a blank slate is the only way that policymakers can hope to enact appropriate reform.

The largest problem facing transportation service markets is the anonymity between the driver and passenger. This anonymity in the past has created a public safety problem due to drivers extorting higher fares from passengers or else using the seclusion of a taxi ride to assault them. Similarly, though less emphasized, drivers are at the mercy of criminally-minded passengers, with the result that taxi drivers face the highest on-the-job murder rate for any profession in the U.S.

Laws created in the interest of public safety are an appropriate function of local government. However, many times special interest groups use the guise of public safety to argue for regulations that protect them from competition. For example, although mandating that taxicabs have bulletproof partitions between the driver and passenger would protect the driver from thieves, they are a costly piece of equipment that can create a barrier to entry for entrepreneurs. Furthermore, many other taxi regulations have explicitly limited entry by new drivers or companies, as well as creating price controls and business practice mandates that have nothing to do with public safety. In short, there are many clear violations of the principles of generality and free exchange.

Because most taxi regulations violate generality and free exchange, there is good reason to believe that municipal-level TNC regulations would have the same effect. Thus, Mississippi appears to have acted correctly in preempting local regulation of TNCs. In fact, the argument could be made that Mississippi did not go far enough and should have preempted local regulation of taxis and limousines as well, following Michigan’s example.

This is an excerpt from Local Governments Run Amok? A Guide for State Officials Considering Local Preemption by Michael D. Farren and Adam A. Milsap. It was published in Promoting Prosperity in Mississippi.


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