It’s always a pleasure to have one’s intuition confirmed. Last week, we at R Street were mighty pleased when a new working paper from the National Bureau of Economic Research confirmed what we long have believed about ridesharing services like Uber and Lyft – they are, as a matter of efficiency, better than taxis.

In a paper titled “Disruptive Change in the Taxi Business: The Case of Uber,” economists Judd Cramer and Alan Krueger (both of Princeton University) examined the efficiency of transportation network companies relative to taxis by comparing the utilization rate of UberX drivers with that of taxi drivers. The utilization rate reflects the amount of time and distance traveled during which a driver has a passenger in their vehicle – the period in which they are adding both cash to their own pocket and value to society – versus the amount of time they spend driving around without a passenger and waiting for a fare.

Where data was available, the study found that Uber’s utilization rate was higher than that of taxis, as seen the graphic below:

 uber capacity

 The above-the-fold takeaways offered by Cramer and Krueger to explain this phenomenon were fourfold:

  1. More efficient technology to match drivers with passengers
  2. Ridesharing firms have greater scale than taxi companies;
  3. Taxi regulations are inefficient taxi regulations; and
  4. TNCs have a more flexible supply of labor, combined with dynamic pricing, which allow them match supply with demand more closely.

Taxis are fighting a two front-battle against new business competition and against rules that restrict their ability to adapt. While the study does not tease out the relative contribution of each factor to UberX’s superior performance, it is clear that the value TNCs offer over taxis is in no small part accentuated by obstacles that have been erected by the regulatory state. The Cramer/Krueger study underscores just how inefficient incumbent regulatory systems can be.

RideScore 2015, our annual study of transportation-for-hire regulation across the nation, found that taxis are often confronted with vestigial rules that do not apply to either TNCs or limousines, particularly when it comes to the way fares may be charged. It is not yet clear whether jurisdictions that have chosen to liberalize their regulation of taxis have furnished a more competitive environment – the business-model advantage of the TNCs may well be too great – but Cramer and Krueger’s work suggests that such liberalization could only help taxis improve their utilization rates.

The paper’s conclusion underscores a larger point about the nature of our changing economy. Flexibility leads to the democratization of services that are otherwise too expensive for many to regularly use. Troublingly, it is the state that has erected some of the most substantial barriers to more widespread enjoyment of such services. Ossified rules that attempt to maintain fairness between market participants at all costs have the effect of stunting economic empowerment.

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