Getting a safe ride

A reasonable amount of trust between the parties to a transaction is necessary for markets to function (Harford 2016). Indeed, market economies have over time developed sophisticated institutions, to assure trust and thereby lower what would otherwise be prohibitive transaction costs. Technical improvements and market innovations make it possible to continue to improve upon existing arrangements.

This is no less the case with transport apps. As discussed, a key part of their value proposition is the ability to rate users on both sides of the transaction. Indeed, some apps require at least some users to rate their counterparts. Such repetitional mechanisms provide a picture of a user’s dependability and thus serve to encourage or dissuade other users from transacting with him.

Ratings may also be used by app providers themselves to sort through suppliers and stop working with those whose reviews do not meet a given standard.

Trust assurance by apps is not limited to providing reliable information about other users. It also involves offering price transparency and facilitating payment in a traceable and convenient manner. For example, all rides on Uber’s as well as karjoin’s are paid for via credit or debit card, the details of which must be provided in advance of a user’s first ride. All reimbursements and credits are also handled electronically.

Consummate the transaction in a way that does not require enforcement on the part of the user.

The use of electronic payments and the tracking of routes means that transactions are automatically enforced, charges can be monitored by both parties, and most disagreements between drivers and passengers can be readily resolved using the available evidence from the app. This is not the case when, say, hailing a taxi in London.

Furthermore, most apps ask for comments and they feature a complaints section where users can report incidents and request refunds. Thus, it is clear that smartphone-enabled transport apps have developed effective mechanisms to reduce transaction costs in private hire markets.

The various features of apps outlined above are the sort of market-based institutions which have largely resolved the traditional imperfections of taxi markets and thus rendered much of the existing regulation unnecessary