Who's Afraid Of Deregulation?

- Srikanth Ramakrishnan

THE ARRIVAL OF ride-sharing through mobile apps like Uber and Ola has revolutionised urban mobility and disrupted the traditional set-up of public transport. Such an upheaval has also brought with it a series of conflicts between the service provider and government regulators over the legal status, rights and liabilities of the cab aggregators. While a regulatory regime is set up with a goal of maximising social welfare, over-regulation of industries entails a risk of giving birth to rent seeking and inefficiency. According to Nobel laureate George Stigler, when an industry is experiencing disruption (as is the case currently with public transport), the adverse impact on the inefficient players must be viewed as a natural economic process which is the outcome of innovation and can only lead to higher growth. Further, building on his theory of “creative disruption”, Stigler argues that a rigid and burdensome regulatory structure can retard all three stages of creative destruction — invention, innovation and diffusion. This is exactly what is happening in the case of ride-sharing mobile apps.

LEGAL STATUS OF CAB AGGREGATORS