Rent Seeking and Transportation Service Innovations

Steve Blank at the Berkeley blog has a nice piece about rent seeking strangling innovation. He doesn't set out to highlight how rent seeking has diminished innovation in the transport sector, but he ends up doing so with examples including auto dealers blocking Tesla, protectionist policies that distort auto imports and manufacturing, and taxi services. Rather than me writing new explanations of rent seeking, here is what he wrote:

Rent seekers
Rent seekers are individuals or organizations that have succeeded with existing business models and look to the government and regulators as their first line of defense against innovative competition. They use government regulation and lawsuits to keep out new entrants with more innovative business models. They use every argument from public safety to lack of quality or loss of jobs to lobby against the new entrants. Rent seekers spend money to increase their share of an existing market instead of creating new products or markets. The key idea is that rent seeking behavior creates nothing of value.
These barriers to new innovative entrants are called economic rent. Examples of economic rent include state automobile franchise laws, taxi medallion laws, limits on charter schools, auto, steel or sugar tariffs, patent trolls, bribery of government officials, corruption and regulatory capture. They’re all part of the same pattern – they add no value to the economy and prevent innovation from reaching the consumer.

 .....

 How do rent seekers win?

Instead of offering better products or better service at lower prices, rent seekers hire lawyers and lobbyists to influence politicians and regulators to pass laws, write regulations and collect taxes that block competition. The process of getting the government to give out these favors is rent-seeking.
Rent seeking lobbyists go directly to legislative bodies (Congress, State Legislatures, City Councils) to persuade government officials to enact laws and regulations in exchange for campaign contributions, appeasing influential voting blocks or future jobs in the regulated industry. They also use the courts to tie up and exhaust a startupslimited financial resources.


Lobbyists also work through regulatory bodies like FCC, SEC, FTC, Public Utility, Taxi, or Insurance Commissions, School Boards, etc. Although most regulatory bodies are initially set up to protect the public’s health and safety, or to provide an equal playing field, over time the very people they’re supposed to regulate capture the regulatory agencies. Rent Seekers take advantage of regulatory capture to protect their interests against the new innovators.

There have been shockingly few service and technological innovations in all aspects of regulated transport over the past few decades. Automobility is long in the tooth for a technology, which may be why we are seeing a decline in auto travel. Transit has performed poorly relative to investment, with few productivity gains and only minor service improvements since the mid-1970s*. Taxi services remain largely unchanged to the point that few cities have bothered to even consider changing how many taxicabs are allowed.

A major reason that there have been so few innovations is because of rent seeking, and understanding economic rents is critical for all planners and transport officials. Here are a couple of recent rentier examples  that make cities worse off: LA blocks taxi apps, and Veolia engages in regulatory capture. Many of the rent seekers are private companies, so don't think that privatization is the key to innovation. Rentiers can be private or public, and in all cases make the public and consumer worse off.

Here is a link to a podcast about rent seeking by a couple of libertarian (at least libertarian leaning) economists, Mike Munger and Russ Roberts (I updated the names based on a commenter rightly saying I should name these two. The podcast and links are excellent sources for information). There are lots of additional links there, too. One thing about rent seeking is that everyone is against it regardless of political persuasion. People differ in what to do about it.


*I am referring to transit in the US generally, not specific lines or station areas. While the past few years transit ridership has grown faster than the population overall, transit ridership is below 1970 levels by nearly all metrics. This helps illustrate the problem.

A Timeline of Los Angeles Transit Agencies

This timelime and diagram of Los Angeles transit agencies is impressive. It presents an honest history of transit agencies in Los Angeles and doesn't promote the false idea that there was some type of streetcar scandal or conspiracy.

There isn't any analysis in the timeline but a lot of information.

Federalism in Action: Two States' Approach to Electric Cars

California and North Carolina are quite different in many ways, and now we can include their approach to electric cars. California has launched an aggressive subsidy program to get motorists to to rethink the internal combustion engine. From the LA Times:

Want to pay $7,000 for a $37,000 electric car?

It's not a trick question. For the first time, through the magic of subsidized leases, electric vehicles can now compete on price with comparable gas-powered cars — indeed, they are cheaper once you factor in gas savings.
Honda announced this week that it would drop the lease on its Fit EV from $389 to $259 a month. That price includes collision and vehicle theft coverage, maintenance, roadside assistance, even a charging station at your house. Factoring in the state rebate, that's an all-in, three-year ownership cost of less than $7,000 — maybe the cheapest $37,000 car in history.
...
If you're looking to buy, state and federal incentives can shave as much as $10,000, nearly a third of the sticker price on a typical model. But automakers and most consumers have turned to leases to ease fears about uncertain long-term maintenance and resale values.
Credit California's tough pollution laws for the EV price war. The California Air Resources Board has mandated that zero-emissions vehicles must constitute 15% of all new vehicle sales by 2025, up from less than 1% now. That has automakers scrambling to get consumers into a set of green wheels, even though they are losing money on every car.
The goal is to boost consumer demand in the nation's largest auto market, hoping that bigger sales can spur research and development to lower the technology's cost.

Meanwhile, in North Carolina:

RALEIGH—North Carolina drivers who use hybrid cars could end up paying for it in the long run.
State lawmakers in the Senate have proposed drivers pay an additional fee if they drive a hybrid or electric car.
They are the car industry's answer to going green. Gas prices are a big reason the hybrid cars have become more popular but if you own one in North Carolina it could cost you.
"The old system of collecting money for our roads is outdated. If this is the best way that we can do that then we're going to be in some trouble for a very long time," said NC Sierra Club Communications Director Dustin Chicurel-Bayard.
One item in the Senate budget calls for drivers to pay an additional fee when they renew their car registration. For hybrid cars the fee would be $50, electric cars the fee would be $100. Since hybrid cars use less gas supporters say the fees would help the state collect that money they lose from the gas tax back in order to fund road projects.

You may or may not agree with either of these approaches to electric and hybrid cars. The goals from each state are very different, which is what we should expect with localized decision making. I suspect those most concerned with the environment will appreciate California's subsidies (some subsidies come from the automakers). Those concerned with how to pay for transport infrastructure may favor the North Carolina model. Both sets of policies have positive and negative attributes, but these are examples of how policy targets will vary across states as (more accurately: if/when) the federal role in transport finance declines.

Micromotives and Macrobehaviors: A Note About Residential Segregation

The Atlantic Cities recently highlighted a new research paper in which the authors argue that people's  teenage years are influential toward the types of neighborhoods that they move to as young adults. Here is the abstract:

Prior research has shown that neighbourhood racial and income contexts remain similar across generations within White, Black and Latino families in the US. This article builds on this research by examining the extent to which geographical mobility during the transition to adulthood attenuates the perpetuation of residential segregation from Whites among Asians, Blacks and Latinos. Data from the National Education Longitudinal Study linked to 1990 and 2000 US census data were analysed. Results suggest that residential exposure to Whites is similar during youth and adulthood among young adults who live in the same metropolitan area where they lived as adolescents, regardless of race/ethnicity. Among those who migrate to another metropolitan area, adolescent exposure predicts exposure among Asian, Black and Latino young adults, but not among Whites themselves. Thus, limited experience with integrated neighbourhoods during adolescence among non-Whites and limited geographical mobility among all young adults help to perpetuate segregation.

This is all fine as these things go, but a weird thing about this paper is that it doesn't cite Thomas Schelling's Segregation Model. This model is explained in the video above, and what Schelling's model predicts is that even mild preference for neighbors leads to nearly full segregation. Even when no one acts in a outwardly racially biased way neighborhoods self-segregate.  Schelling certainly isn't an obscure figure as he received a Nobel less than a decade ago.

What the paper provides is empirical evidence of Schelling's well-known theories, which is welcome. Planners and policy makers should heed the large effects that small biases and preferences can create. Micromotives and Macrobehavior should be required reading.

David Harvey on CIty Monopolies and the Art of Rent

David Harvey is wise and usually has interesting things to say. I'm no Marxist but I agree with many of the things he brings up in this interview with Spiegel. I agree with this especially:

SPIEGEL ONLINE: You are a Marxist and social theorist. In your latest book, you refer to the "art of rent," that is, when capital makes extra profits from local discrepancies. What exactly do you mean?
Harvey : Simply put, a monopolist can demand a premium for a sought-after commodity. These days, cities try demanding premiums by advertising themselves as culturally unique. After the Guggenheim Museum was built in Bilbao in 1997, cities all over the world followed its example and began developing landmark projects. The goal is to be able to say: "This city is unique, and that's why you need to pay a special price to be here."SPIEGEL ONLINE: But if every city had a Guggenheim Museum or a philharmonic like the one currently being built in Hamburg, wouldn't there be a sort of inflationary effect when it comes to such flagship projects that would lead them to fail?
Harvey : The bubble has already burst in Spain, and many of the huge projects remain only half-finished. Incidentally, major events like the Olympic Games, the soccer World Cup and music festivals serve the same purpose. Cities try to secure themselves a prime position on the market -- like a rare wine of an exceptionally good vintage.

Chinese Cities Use Prices to Reduce Demand for Autos--and It Works!

Marketplace reports on Beijing subway expansion and wonders if an increase in transit supply can cure congestion and pollution. The answer is no. Specifically, an increase in transit supply will have limited effects as long as driving is relatively cheap. Zhao Jian explains:

Just five years ago, the Beijing subway system was 70 miles long. Today it’s nearly four times that. But economics professor Zhao Jian at Beijing’s Jiaotong University says it’s going to take more than hundreds of miles of subway lines to solve Beijing’s traffic problem.
"The key to alleviating traffic and pollution in Beijing is to raise the cost of owning and using cars," says Zhao. "As it stands, parking fees are very low and traffic tickets aren’t that expensive. This needs to change."

As a counter example, Shanghai has very different policies:

In Shanghai, on the other hand, a license plate typically costs as much as the car itself. And that’s meant Shanghai, which has a bigger, more affluent population than Beijing, has half as many cars and is often spared Beijing’s persistent toxic haze.

The Hassle of Airport Security is Not a Reason to Build High Speed Rail

A group of students in California have created a new high speed rail advocacy group called "I Will Ride." One of the members wrote an op-ed in support of the California high speed rail project in the Merced Sun Star. In the piece the typical statements of support are said, including this:

With the completion of high-speed rail, valley residents will be connected to the rest of the state like never before. In under an hour, we will be able to travel to San Francisco or Los Angeles without the hassle of airport security or high-priced gasoline.

Of all of the reasons to support high speed rail, the hassle of airport security and high priced gasoline are the worst. Even with high gas prices fuel to drive will be cheaper than one ticket on the train. In addition, it now takes two hours to drive from Merced to San Francisco, so by the time you account for door-to-door travel times it is unlikely that there will be any time savings. That said, using the excuse of airport security hassles as a reason to invest $100 billion in a fast train is passive aggressive infrastructure spending. I bet for a lot less than $100 billion we can make air travel much better. More importantly, if air travel is a hassle let's make it better. Air security is lousy because it is managed poorly and there are lots of ways to improve security within the airports we already have. I'm also not sure why people think trains will be exempt from similar security measures. Passengers on the Acela are regularly pulled aside for additional screening as it is.

Let's not let the TSA get away with awful security theater by building new and different infrastructure. Let's fix what we have first.

Read more here: http://www.mercedsunstar.com/2013/05/21/3023379/fast-rail-a-big-step-forward.html#storylink=cpy