What are the downsides to deregulation?
Spontaneous private deregulation tends to give consumers more choices. But it’s difficult to celebrate some other effects. The following excerpt is from an article in the Harvard Business Review (HBR) magazine (April 2016 edition) called, Spontaneous Deregulation by Benjamin Edelman and Damien Geradin. In this article, the authors list the following 2 downsides to deregulation:
1. Discrimination. — Laws (at least in the United States) require equal treatment of all guests, regardless of race, who book at hotel websites or through travel agents. But it is unclear whether or how this requirement applies to less-regulated platforms like Airbnb. In a field experiment, one of us (Edelman, with Mike Luca and Dan Svirsky) found that Airbnb hosts were 16% less likely to accept a reservation request if the guest’s name suggested black rather than white ethnicity. (All requests were fictitious; the team created identical profiles for would-be guests but attached names that census records and survey data showed were disproportionately associated with particular races.)
2. Tax Avoidance. — Commercial vehicles usually pay higher fees for registration, tolls, and the like than do the owners of private cars participating in platforms such as Uber. Similarly, hotel rooms tend to be highly taxed, whereas rooms booked through Airbnb and other platforms usually go untaxed. Governments need revenue, and it’s hard to see why some providers should contribute while others are exempt. That said, modern platforms create an electronic record of every transaction, facilitating tax collection in sectors like taxis, where cash payments previously invited tax evasion.
Source: Spontaneous Deregulation
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