From Jitneys to App-Based Ridesharing: California's 'Third Way' Approach to Ride-for-Hire Regulation
56 Pages Posted: 1 Aug 2014 Last revised: 17 Aug 2015
Date Written: February 15, 2014
The emergence of "app-based ridesharing," and the taxicab industry's frustrated response towards it, is reminiscent of a curiously similar and somewhat overlooked episode in California's — and the country's — early automotive history. Between 1914 and 1917, first in Los Angeles and then elsewhere throughout the United States, bored and unemployed men scraped together what little savings they had and obtained automobiles with the intent of cruising the streets in search of anyone in need of a ride and willing to pay a five-cent fee. Called the jitneys, these makeshift ride-for-hire services were explosively popular, and as with app-based rideshares today, they soon drew the ire of the transportation industry establishment. Despite the apparent willingness of local regulators in Los Angeles to allow the strange little rideshare industry to develop, the railway industry heads in Los Angeles eventually succeeded in compelling them to shut it down through the enactment of extremely restrictive — and arguably economically unjustified — regulations. The jitney experience in Los Angeles offers a number of enlightening insights into the current regulatory debate over app-based ridesharing, especially given that CPUC regulations have apparently done little to resolve the debate at the local level. A careful examination of the jitney-era regulations reveals a distinction that is important in modern scholarship on regulation: the distinction between economic and "health and safety" regulation. Economic regulation is designed to handle the market inefficiencies associated with the existence of natural monopolies in the provision of some goods. Health and safety regulation, on the other hand, addresses externalities and lack of information. The jitney experience suggests, and a closer analysis of the modern ride-for-hire industry confirms, that only the latter form regulation is truly justified when it comes to regulating both app-based ridesharing and taxicabs.
JEL Classification: K23, K32
Suggested Citation: Suggested Citation