Uber

By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.

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Uber and taxi drivers are shaping up to be the modern day equivalent of the Hatfields and the McCoys; sworn enemies for life.  In many cities Uber is definitely changing the taxi industry, and the price of taxi medallions and licences have been falling faster than the Chinese stock market.

One has to feel for the taxi drivers.  Many have worked long hours for many years in order to save enough to buy their own license.  However,with the introduction of a simple phone app their future economic prospects crash.  (Interesting to speculate what will happen to Uber when self-driving cars become a practical reality.)

Of course taxi drivers and their commissions are fighting back.  The main argument that they have is that Uber drivers are unlicensed, and as such there is no “taxi commission” to regulate bad Uber drivers.  That argument seems reasonable enough.  As anyone who uses taxis frequently knows, it is quite possible to get a scary taxi experience.  As such, taxi’s should be regulated.  But wait a minute …  

I am sure that almost everyone reading this blog has experienced a bad taxi ride (bad condition of taxi, bad driver, bad wait times, etc. etc. etc.)  However I am also quite confident that few if any of you have ever complained to a taxi commission.  Why would you?  After all, a taxi commission is well known as a bureaucratic behemoth that will likely never respond back to you, and if they did it is likely that nothing will ever occur to rectify the situation or punish the bad taxi driver.

Uber however is “regulated” by the “crowd in the cloud”.  Have a bad trip, and with a simple tap on your phone, the social media world knows about your bad driver, and collectively responds.  Which type of regulation is more effective?  Is a commission and formal regulation best or is the “crowd in the cloud” unstructured regulation best?  Is there an analogous question for corporate and financial regulation?  (Answer – I believe there is.)