Graph of the day: Uber Improves Life, Economists Agree

Via our friend @robbidigi we were pointed to this article by Justin Wolfers in the NY Times, which has this fantastic graph. More generally, this graph is from the IGM Economic Experts panel, which carries out surveys like this all the time. Worth checking  out if are you interested in what economists think on topical issues, which is probably nobody except other economists:)



Uber surge pricing: “Sugar coated poison”?

A quite sensationalist headline on stuff this morning…Uber app ‘sugar-coated poison’ – cabbies“. The head of the Taxi Federation is telling us that Uber is evil. Now Uber is a big threat to the traditional taxi business model so take these comments with a grain of salt. Particularly the fact that:

The app is currently illegal in New Zealand

Just because the law hasn’t kept up with technological innovation doesn’t make Uber a bad thing. Now the real fear mongering comes when he talks about Uber’s “surge pricing”

The metering system isn’t authorised and they don’t want to change it because they want to be able to bring in surge pricing. For those people who complain about the cost of taxi fares, you ain’t seen nothing yet.

It’s our job to educate the drivers and the public that this is sugar-coated poison.

What is surge pricing? I’ll let Uber themselves explain it:

Without a surge pricing mechanism, there is no way to clear the market. Fixed or capped pricing, and you have the taxi problem on NYE—no taxis available with people waiting hours to get a ride or left to stagger home through the streets on a long night out. By *raising* the price you *increase* the number of cars on the road and maximize the number of safe convenient rides. Nobody is required to take an Uber, but having a reliable option is what we’re shooting for

So yes, surge pricing means Uber is really expensive when there is a large demand for car rides. You might pay more $ than you would for normal taxi at the same time, but this ignores the non financial cost you might incur waiting for a normal taxi. So we incur the opportunity cost today when we are trying to find a cab on Saturday night. Surge pricing gives you the option to pay a premium to avoid that. In total it may not be more “expensive” depending on how you value your time. Is that a bad thing? You still have the option of catching a normal cab….I can think of a few nights where surge pricing would have come in mighty handy.

Update: by pure coincidence Jesse Mulligan just tweeted the following from LA…turns out Uber can be cheaper than taxis too, no wonder the taxi industry is scared!

Costs and (or lack of) benefits of transport projects

Auckland Transport Blog have put up a post today discussing the costs and benefits of the planned transport projects in Auckland that the government is backing. I’ll discuss that in a second, but first there is something I want to get off my back regarding the assessment of transport projects.

BCR ratios (aka CBA by another name)

One thing that has always intrigued me when I hear about transport projects is that rather than talking about the “net benefits” from a “cost benefit analysis” (CBA), they talk about “benefit cost ratios” (BCR). Now the BCR is just the calculated benefits divided the costs (B/C). The surprising thing to an economist is that the BCRs are often < 1.

This means one of two things:

  1. The projects are money hole and shouldn’t be built (we get less benefits than we put in)
  2. There are significant non-quantifiable (or difficult to measure) benefits, and bureaucrats have made the judgement call that the non-quantifiable benefits are enough to tip the balance to give a true BCR>1. So there is some objective analysis, and some “gut feel”, but this can’t be avoided.

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Bike lanes beget bicycles

Meta-research shows that more bike lanes generate more cyclists:

Buehler and Pucher found that the presence of off-road bike paths and on-street bike lanes were, by far, the biggest determinant of cycling rates in cities. And that’s true even after you control for a variety of other factors like how hot or cold a city is, how much rain falls, how dense the city is, how high gas prices are, the type of people that live there, or how safe it is to cycle. None of those things seem to matter quite as much. The results, the authors write, “are consistent with the hypothesis that bike lanes and bike paths encourage cycling.”
If that sounds overly obvious, the authors do note that previous research was somewhat scattered on this question. A few studies had found that more bike lanes in a city were associated with more cycling, though it was unclear which was causing which.

The tricky question here is the direction of causation, and it’s likely that causation runs both ways. To claim that bike lanes generate cycling we really need a plausible hypothesis for why that might happen. Thankfully, it’s not that hard: bike lanes lower the cost of cycling because they’re more pleasant and less dangerous. Lower prices mean increased demand for cycling.

OK, so building bike lanes makes cycling cheaper, which gets more people cycling. But that doesn’t mean they’re a good idea, unless more cycling is just inherently good. To decide whether it’s good policy to build more bike lanes we need to compare the cost of building them to the price that people are willing to pay to use them (plus any externalities). Hopefully that’s what’s being done, even though the local newspaper makes it sound as if the main issue is the strength of the cycling lobby!

Obvious perverse incentive of the week award goes to…

As rightly pointed out over at Kiwiblog, when you make something free you distort incentives around use of that good or service.

The previous Government introduced a Supergold card, offering concessions and discounts on various goods and services. In all their wisdom, they offer free off-peak travel on certain public transport. One such service was the Fullers Ferry to Waiheke Island.

It has now been reported that pensioners flocking to Waiheke Island have delivered more than $750,000 in Government subsidies to Auckland ferry operator Fullers in the first five months of free travel, with an average of 200 pensioners per day taking in the journey.

Who could possibly have foreseen that response?

Raising the drinking age: Not a lifesaver

Just saw this article courtesy of Greg Mankiw. In the article the authors talk about the impact of rising the drinking age from 18 to 21 in the US. There were two parts – a voluntary lift in some states, and later on a legislated increase for the whole country.

The key bit for me is this (highlighting by me):

The results are striking. Virtually all the life-saving impact of the MLDA21 comes from the few early-adopting states, not from the larger number that resulted from federal pressure. Further, any life-saving effect in those states that first raised the drinking age was only temporary, occurring largely in the first year or two after switching to the MLDA21.

So this isn’t saying that lifting the drinking age is necessarily a bad idea – but that it isn’t necessarily going to save lives either. In the end only the states which did it voluntarily (where it was more of a community effort) had any impact – and even that was only temporary.
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