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Micro-Regulation in the Platform Economy Greg Buchak†

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Micro-Regulation in the Platform Economy Greg Buchak† Micro-Regulation in the Platform Economy Greg Buchak† ABSTRACT The widespread adoption of gig economy platforms like Uber, Lyft, and Airbnb has had a significant impact on local economies. City governments have struggled to address conflicts between local interest groups, incumbent industries, and the platforms themselves. While the focus has been on these conflicts, the poli- cy debate has largely overlooked ways in which these platforms might—and al- ready do—serve as a powerful tool for city governments to effect difficult policy goals. This Article explores how platform intermediaries like Uber and Lyft can serve as “intermediary regulators,” using their unique economic position to aid in the implementation of public policy. Drawing on a novel dataset of vehicle registra- tions, this Article shows that Uber’s and Lyft’s own embedded vehicle eligibility requirements have already achieved progress on vehicle emissions reduction, in- creases in capacity utilization, and increased vehicle access and employment op- portunities for low-wage and underemployed residents With this proof of concept in hand, the Article explores other ways that platform intermediaries can be engaged to further public policy goals, with an eye toward a realistic implementation of so- called micro-directives. INTRODUCTION When the United States withdrew from the Paris Climate Accord, mayors of thirty of the largest US cities decided they would uphold the agreement without the federal government.1 Committing primarily2 to expand renewable energy, vehicle emissions standards, and energy efficient buildings, the mayors hope to meet the Paris climate accord goals of reducing their cit- ies’ greenhouse gas emissions 26 to 28 percent below 2005 levels † PhD candidate in the Joint Program in Financial Economics in the Economics Department and Booth School of Business and The University of Chicago. 1 See Hiroko Tabuchi and Henry Fountain, Bucking Trump, These Cities, States and Companies Commit to Paris Accord (NY Times, June 1, 2017), online at http://www.nytimes.com/2017/06/01/climate/american-cities-climate-standards.html (vis- ited Dec 28, 2018) (Perma archive unavailable); Michael D. Regan, U.S. Cities, States Pledge Support for Climate Accord (PBS, Nov 11, 2017), archived at http://perma.cc/NL7D-RL3A. 2 See Kristin Igusky, et al, America’s Pledge Phase 1 Report: States, Cities, and Businesses in the United States Are Stepping Up on Climate Action *9–10 (Bloomberg Philanthropies, Nov 2017), archived at http://perma.cc/HTT8-AJ4C. 1 2 2018 Ephraim Prize Winner by 20253 without the involvement of the federal government. The so-called “Chicago Climate Charter” attracted city and state signatories that together account for more than 35 percent of the US economy.4 In consequence, successfully meeting these goals would contribute significantly toward achieving the now- abandoned federal goal. This is not the first time that US mayors have made joint environmental pledges. In 2005, the Mayors Climate Protection Center was founded with a similar goal. When the United States declined to ratify the Kyoto Protocol,5 participating mayors pledged to “[s]trive to meet or beat the Kyoto Protocol targets in their own communities, through actions ranging from anti- sprawl land-use policies to urban forest restoration projects to public information campaigns.”6 Their enthusiasm notwith- standing, the mayors were largely unsuccessful. Among the cit- ies that actually tracked and reported their progress, New York’s and Chicago’s emissions increased rather than decreased, with Chicago’s 2020 emissions levels projected to be 62 percent above the target.7 Commentators and academics have pointed out that while cities and local governments can pursue some av- enues, such as educational programs and agreements with local businesses, they are unable to engage in policies that may have wider and more significant effects, such as implementing energy taxes or setting fuel efficiency standards.8 Facing these limita- tions, they argue that national-level action may be a necessary ingredient in achieving these local goals. This Article suggests that help lies in an unlikely place: American cities currently face the seemingly unrelated problem 3 See Mitch Smith, 4 Takeaways from a Gathering of Mayors on Climate Change (NY Times, Dec 5, 2017), online at http://www.nytimes.com/2017/12/05/us/climate- change-mayors-chicago.html (visited Dec 28, 2018) (Perma archive unavailable). 4 See About (We Are Still In, 2018), archived at http://perma.cc/V5KH-YR2X. See also, generally, City of Chicago, Office of the Mayor, Chicago Climate Charter (Dec 5, 2017), archived at http://perma.cc/98LK-95NR. 5 See Paul Reynolds, Kyoto: Why Did the US Pull Out? (BBC, Mar 30, 2001), ar- chived at http://perma.cc/E343-XKKX. 6 See Mayors Climate Protection Agreement, (United States Conference of Mayors) archived at http://perma.cc/C5UB-6QX7. 7 See Todd Myers, U.S Mayors on Climate: This Time Will be Different (National Review, June 15, 2017), archived at http://perma.cc/Z5MM-APG4. 8 See Miranda A. Schreurs, From the Bottom Up: Local and Subnational Climate Change Politics 17 J Envir & Dev 343, 349–352 (2008). See also Samuel Fraiberger and Arun Sundararajan, Peer-to-Peer Rental Markets in the Sharing Economy *25 (NYU Stern School of Business Research Paper, 2017), archived at http://perma.cc/EC8S- UBWD; Micro-Regulation in the Platform Economy 3 of managing the rapid growth and adoption of gig economy9 businesses like Uber, Lyft, and Airbnb. These businesses, at their heart, lever technology to create low-cost two-sided mar- kets, connecting, for example, riders and drivers in the case of Uber and Lyft, or empty housing with vacationers in the case of Airbnb. These businesses have been embroiled in regulatory controversies and pushback from all sides, even as they have ballooned in popularity around the world. Commentators have decried,10 incumbents have lobbied, and cities in the US11 and globally12 have responded with outright bans or per-use taxes on rideshare services aimed at raising revenue.13 This Article takes these controversies between gig economy platforms and the various interest groups in opposition as given and does not attempt to resolve them. These controversies not- withstanding, the Article instead seeks to highlight the un- derappreciated opportunities that these new businesses and two-sided platforms—more generally—offer that can aid cities in effecting unrelated policy goals. Government engagement with these platforms has so far been limited to ignoring them, ban- ning them, or imposing limited surcharges.14 In short, these platforms furnish local regulators with a powerful set of levers perfectly suited to the monitoring and enforcement of otherwise difficult to implement regulatory aims. As platform intermediar- ies between two broad groups of people, their technology, their 9 Others have used terms like “sharing economy” or “new economy.” See generally, for example, John J. Horton and Richard J. Zeckhauser, Owning, Using, and Renting: Some Simple Economics of the ‘Sharing Economy” (NBER Working Paper 22029, Feb 2016), archived at http://perma.cc/VK8A-SJPJ; Maryam Razeghian and Thomas A. We- ber, To Share or Not to Share: Adjustment Dynamics in Sharing Markets (École Poly- technique Fédérale de Lausanne Research Paper, Nov 2016), archived at http://perma.cc/S2E8-4MAN. This paper adopts “gig economy” to emphasize the two- sided nature of the markets that these services create, which is central to this Article’s themes. 10 For a detailed account, see generally Brishen Rogers, The Social Costs of Uber 82 U Chi L Rev 85 (2016); Cristiano Codagnone, Federico Biagi, and Fabienne Abadie, The Passions and the Interests: Unpacking the ‘Sharing Economy’ (Joint Research Centre, 2016), archived at http://perma.cc/BP3G-UM96. 11 See Dave Lee, What Happened in the City that Banned Uber (BBC News, Sept 30, 2017), archived at http://perma.cc/5L8L-7SLZ. 12 Anna Rhodes, Uber: Which Countries Have Banned the Controversial Taxi App (Independent, Sept 22 2017), archived at http://perma.cc/C3NZ-WKZQ. 13 Winnie Hu, When Calling an Uber Can Pay Off for Cities and States (NY Times, Feb 18, 2018), online at http://www.nytimes.com/2018/02/18/nyregion/uber-lyft-public- transit-congestion-tax.html (visited Dec 28, 2018) (Perma archive unavailable). 14 See, for example, id (illustrating how New York, Philadelphia, and Boston im- plemented surcharges to raise money for other projects). 4 2018 Ephraim Prize Winner interests in data collection, and their centralized control over their platforms make possible regulations that city governments could not currently implement. By working with, rather than against, these platform intermediaries, cities have the oppor- tunity to capture the power of what this Article calls intermedi- ary regulators. These intermediary regulators can in turn be harnessed to make progress on issues in which cities have an in- tense regulatory interest. Consider, for instance, the mayors’ climate pledge. How, for example, might a city reduce vehicle carbon emissions? Consider first a ban or tax on vehicle emissions imposed at the city level. Monitoring and enforcement will likely be expensive for a city to handle on its own. Difficulties in implementation will likely be compounded by geographical realities. For example, if vehicles registered in New York City are re- quired to meet certain emissions standards or pay a tax, how should the city handle out-of-city commuters coming from Long Island or New Jersey? Additionally, political economy issues arising from conflicts between state and local regulators are an important consideration. Vehicle registrations, inspections, and record-keeping occur at the state level, and to the extent that cities and states have different political aims, cities may be handicapped in their ability to lever this existing data infra- structure. Additionally, such regulations likely exist on a spectrum of hard-edged and simple to implement versus soft-edged and hard to implement.
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