Tuesday, June 25, 2013

Crowdsourcing Regulation

A few interesting recent regulatory moves:
- California state regulators try to ban ridesharing services such as Lyft as unlicensed taxi service
- New York City bans AirBnB as an unlicensed hotel
- Several states attempt to ban Tesla from selling direct-to-consumer cars because...well, it's not clear why except that car dealerships are threatened and have a lot of friends in high places.

These all have in common 20th century regulation colliding at high speed with 21st century commerce.  As another example, the America Psychological Association has long made it illegal to provide psychological counseling for patients unless both the patient and the doctor are licensed in the same state, making telemedicine a difficult proposition.

For the most part, these regulations are well-intentioned (with the exception of the Tesla direct sales ban.)  They are intended to prevent consumers from getting ripped off in an imperfect marketplace, and to impose minimum standards of safety, cleanliness, and service on service industries.  And, pre-Internet, they made a lot of sense.  How was I supposed to know if this pink-mustache car that I'm climbing into is going to take me for a ride?

But a funny thing happened on the way to ubiquitous informational awareness.  You can't book an AirBnB or a Lyft or buy a Tesla direct without an internet connection.  And, if you have an internet connection, you can in fact find out whether these services are reputable and safe.  There's no information asymmetry anymore for these services.  Is it possible that Yelp and other review services have actually solved the problem of crowdsourcing regulation?

Still, there's a need for enforcement.  How do we verify bad actors and punish them without a licensure model and an army of inspectors?  Enter: ADA compliance lawsuits.  The Americans with Disabilities Act imposes a number of requirements on small businesses to ensure accessibility for those with disabilities, such as adequate disabled parking and accessible toilets.  And, instead of employing inspectors, it empowers disabled individuals to sue for non-compliance, and receive damages.  Libertarian think tanks find this practice appalling, and call it frivolous.  But in my mind, this is a Libertarian dream come true: no messy government inspectors or agencies, we simply empower individuals with market-driven incentives, and they ensure appropriate compliance.  The explosion of cell phones and connected mobile devices ensures that the consumers of internet-based services have the tools to ensure compliance on their own.  For instance, services like Uber and Lyft routinely record the routes their drivers take, and so could any consumer, using a GPS enabled smartphone.  If they feel the route they took was inefficient and they were overcharged, they have all the evidence they need in their pocket to prove it.  If they feel the driver was unsafe, or the car was filthy, they can easily take a photo or video and instantly file a report.  When everybody is an inspector, who needs inspectors?

There's no doubt that the profusion of government regulation in this sphere is in part due to entrenched interests.  Taxi cabs don't want competition from ridesharing, and hotels don't want competition from house-sharing.  But the existing regulatory regimes aren't laudable, they're laughable, and they're long due for an overhaul.  Everybody would benefit from the expanded competition and vastly expanded compliance information that the public could provide.


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