Policy Documents

Research & Commentary: Rideshare Regulation in Illinois and Chicago

May 27, 2014

Over the past several years, the popularity of “transportation network providers” (rideshare) has grown exponentially across the country. Providers such as Uber, Lyft, and Sidecar do not own any vehicles or employ drivers, but instead have developed smartphone applications that enable consumers to access on-demand driver services. Demand for ridesharing has been booming in large part because it offers consumers an alternative to the traditional taxicab industry, which David Autor, an economics professor at the Massachusetts Institute of Technology, says is “characterized by high prices, low service, and no accountability.”

Despite widespread consumer support for rideshare, lawmakers in Chicago are facing pressure from traditional taxi companies to impose onerous regulations on rideshare providers. The Illinois State Legislature recently passed a bill that would impose regulations on rideshare providers. Many of the regulations proposed for Chicago mirror those passed by the state.

The state would force drivers who are in service more than 36 hours every two weeks to obtain a chauffeur’s license; the city’s proposal would cut the threshold to 20 hours per week. Enacting arbitrary service hour requirements will remove some rideshare drivers from the road and increase costs to consumers. Both the city and state proposals would require rideshare license holders to have commercial general liability and automobile insurance coverage. The city would require drivers to have at least $1 million even though traditional taxicabs are required to have only $350,000 in coverage.

Although some of the regulations in the city’s proposal would overlap those being implemented by the state, several aspects would lead to further regulation by the city.

First, pick-ups from Chicago’s commercial airports and McCormick Place would remain off-limits to rideshare providers. This feature of the proposal directly shelters the highly profitable realm of cab companies for no other reason than to protect them from competition. This policy reduces consumers’ transportation options and can result in long waits.

Second, the proposal would give the city commissioner power to cap the “surge” pricing system utilized by rideshare providers. Limiting surge-pricing will decrease consumers’ transportation options because fewer drivers will choose to be on the road during high-demand times such as rush hour, holidays, or periods of inclement weather.

Finally, the new proposal would impose license fees on rideshare companies. Companies would be forced to pay an annual fee of $10,000 and/or $25,000 depending on whether they work with drivers whose service hours are above or below 20 per week. Companies working with both tiers would be required to pay both fees. Those supporting the license fees argue it is nominal for larger companies such as Uber, Sidecar, and Lyft, but it could deter small start-ups from entering the market.

The consumer demand for and satisfaction with rideshare services demonstrate why additional regulations are unnecessary. Rideshare companies already do background checks on prospective drivers and utilize consumer rating systems to ensure safety. Imposing burdensome regulations on rideshare providers would suppress competition, increase cronyism, and reduce access to transportation options that are reliable, safe, and affordable. Instead of increasing regulations on the rideshare industry, policymakers should reform and remove regulations from traditional taxicab services that make them less competitive.

The documents cited below provide multiple perspectives on transportation network providers and ridesharing.

 

Research & Commentary: Rideshare Regulation

http://heartland.org/policy-documents/rideshare-regulation

Imposing burdensome regulations on ridesharing providers will suppress competition, increase cronyism, and reduce access to transportation options that are reliable, safe, and affordable. Instead of increasing regulations on the rideshare industry, policymakers should reform and remove regulations from traditional taxicab services that make them less competitive.

Ten Principles for Improved Business Climate

http://heartland.org/policy-documents/ten-principles-improved-business-climates

Maintaining a good business climate has never been more important. Thanks to the Internet, the collapse of communism around the world, and advances in shipping and logistics, capital and labor are much more mobile than in the past. Businesses must bid for customers and workers not only from local competitors but from businesses in other communities, in other states, and even in other countries. Small changes in taxes, regulations, and other cost-drivers can lead to businesses losing customers and possibly failing or relocating.

Invasion of the Taxi Snatchers: Uber Leads an Industry’s Disruption

 http://www.businessweek.com/articles/2014-02-20/uber-leads-taxi-industry-disruption-amid-fight-for-riders-drivers#p1

In this BloombergBusinessweek article, Brad Stone examines the rise of Uber and other transportation network services and explains how they became so successful. The article includes commentary from the Uber CEO, current and past company drivers, and economists who explain the impact of the ridesharing model.

The 6 Worst Things About Illinois’ Proposed Ridesharing Law

http://www.illinoispolicy.org/the-6-worst-things-about-illinois-proposed-ridesharing-law/

The Illinois Policy Institute’s Jacob Huebert outlines several shortcomings of Illinois’ proposed ridesharing law. In particular, he notes ridesharing should not be a state issue in Illinois, as the only city in the state where ridesharing services can be found is Chicago.

How Tech Can Render Regulations Uber Obsolete

http://www.cato.org/blog/how-tech-can-render-regulations-uber-obsolete

Improvements in the technology industry are making many regulations obsolete. Cato Institute Research Fellow Julian Sanchez argues, “On the Uber model, any rationale for subjecting driving services to a special regulatory regime—beyond the rules that apply to every business—simply evaporates.” Sanchez shows Uber and other similar companies are regulated naturally by market pressures.

An Uber Challenge to Tacky Taxis

http://mercatus.org/expert_commentary/uber-challenge-tacky-taxis

Matthew Mitchell of the Mercatus Center describes how Uber is successfully breaking the monopoly of the Washington, DC taxi commission. The commission has responded with proposed regulations, and Mitchell claims it is because “regulators often are captured by the very industries they are intended to regulate. In this case, it appears the commission is more interested in serving the extant D.C. taxi operators rather their customers.”

Uber Gives Taxi Regulators an Economics Lesson

http://blog.heritage.org/2012/12/03/in-ubers-regulatory-fight-its-economics-vs-emotion/

The “surge-pricing” system used by Uber has come under fire from critics who claim it gouges customers. Lachlan Markay of the Heritage Foundation refutes these claims, noting the company is simply engaging in basic supply-and-demand economic principles.

Uber Violence and Supply & Demand

http://www.cato.org/multimedia/daily-podcast/uber-violence-supply-demand

In a Cato Institute podcast, Peter Van Doren, a senior fellow of the Cato Institute and editor of Regulation magazine, discusses the impact of Uber and explains how its success is determined by free-market principles.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other tax topics, visit The Heartland Institute’s Web site at http://www.heartland.org, Budget & Tax News at http://news.heartland.org/fiscal, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Government Relations Coordinator Alex Monahan at 312/377-4000 or amonahan@heartland.org.