Go here to listen to a really good Econtalk discussion between economists Russ Roberts and Mike Munger about the sharing economy. Uber and Airbnb certainly provide improved offerings (though not always a lower price), but they also skirt tax and regulatory rules. It’s pretty clear that consumers want a peer-to-peer economy, but there are consequences for those who’ve adhered to traditional regulations. What if you spent a million dollars on a NYC taxi medallion a few years ago only to find out the value of your purchase has cratered (which hasn’t happened yet but potentially could) because of Uber and Lyft and the like? These companies have improved the transportation market, they’ve innovated ways for consumers to connect to cabs, but they aren’t playing by the rules.

So here’s the question: What happens to all parties when the rules have changed in practice but not (yet) on paper? Munger thinks New York will ban Uber, but it’s hard to believe those market forces will be constrained for very long. Nor should they be, really. One passage from the discussion:

“Russ Roberts:

We should explain. A medallion is–

Mike Munger:

A license.

Russ Roberts:

It’s a license that allows you to, in the case of a cab company, to pick up a stranger on the street who is raising his hand, saying, ‘Taxi’. There has always been an out for limos. You can always call a limo service to your house. I don’t think they need the same–they don’t have the exact same regulatory structure. But certainly, it is against the law in almost every city in America to cruise around and offer to pick up somebody who is raising his or her hand looking for a taxi and act like a taxi. And what Uber has done is be a little bit different. Sort of like that, but a little bit different. And that’s what the regulatory issue is.

Mike Munger:

Yeah. It’s much harder for the police. You don’t have to raise your hand, now. You just press a button on your phone unobtrusively. And the police don’t know. For all they know, it’s your friend picking you up at the airport.

Russ Roberts:

But, I think you exaggerate slightly. So, the medallion–now medallions have sold recently for as much as a million dollars.

Mike Munger:

In New York.

Russ Roberts:

In New York. Despite the Chicago story. So, there are people who are still investing in the right to be a taxi cab driver, either because they think that Uber is not as important as we do, or they think that Uber will be stopped and shut down and will not be a competitive force.

Mike Munger:

I predict that Uber will be stopped and shut down.

Russ Roberts:

Okay, I’m going to go against you there. I’m going to disagree with you. It is under tremendous regulatory pressure. Pittsburgh just announced–

Mike Munger:

I just meant in New York. In New York City. I just think that the people who made that, are making a good bet. It’s too easy to make a sting operation.

Russ Roberts:

Okay. We’ll see. But I do think that–the question isn’t that–I don’t think that Uber is illegal right now. It’s a gray area. Pittsburgh has just ruled that it must comply with the Pittsburgh Utility Council’s, or Pennsylvania Utility Council’s regulations. In Europe there’s tremendous pressure to shut down Uber, not allow them. But remember, there is tremendous pressure from riders. Who like it. And I think–I want to make sure we make something clear here. There are two aspects to this attractiveness of Uber. One of them–I don’t think it’s so much the price. I don’t think the price is that much different. I think it’s the convenience and power of it, on a calm, normal day; and I think it’s its ability change price on the fly, using a fairly sophisticated algorithm.

Mike Munger:

But the taxi companies can mimic all of that. They’ll do it within a month. It’s easy to do. If that were the reason, that’s easy to do. It’s basically open-source software.

Russ Roberts:

I don’t know about that. Um, you are suggesting then that the cab company doesn’t offer me a web, a phone-based opportunity to hail a cab because they don’t need to? Because they have a monopoly?

Mike Munger:

Yeah.

Russ Roberts:

I don’t know. I think the software is what gives Uber its comparative advantage.

Mike Munger:

It’s interesting that the taxi companies are so awful at this. So, if nothing else, Uber may force the taxi companies to improve the way that you connect with a taxi. But I think the cost advantage is really a problem, because it actually raises a lot of questions about the nature of due process. Suppose that we don’t take any action and the value of these medallions falls to zero. Are we obliged to offer compensation, because we in effect made a regulatory decision that is a taking? This property right, this medallion, had significant value. We made a choice, without due process, that said we are going to reduce the value of this medallion to zero. Are we obliged to compensate?

Russ Roberts:

Who is ‘we’?

Mike Munger:

The state. Just like we would if we were taking your land under eminent domain to build a road.”