As someone who lives in SF, I really enjoyed this piece! When I first heard about Bay Wheels previously, it took me a while to realize that people were referring to the Lyft bikes (instead of something actually branded as “Bay Wheels”). I didn’t realize these bikes were so unprofitable, but it makes sense considering how many unprofitable businesses there are and VC culture. I think this distinction between good services vs good business is really interesting - a little unintuitive for me and something that I don’t think about a lot normally given our heavily capitalist culture. Thanks for sharing!
The highlighted examples--consumer price and data sharing--are both easily contractible. The obvious alternative for San Francisco is to renegotiate its contract with Lyft.
The economic force thought to determine the social desirability of public or private provision is instead what's not easily contractible. Government cost and consumer prices are easily contractible, so Lyft as the residual claimant of profits has incentives to make the outsourced program more efficient. But if bike upkeep is not easily observable, then the government may be concerned that Lyft will cut corners. The foundational paper laying out this idea is Hart, Shleifer, and Vishny (1997). Section 3.2 of Glaeser and Poterba (2020) discusses it in the context of transportation infrastructure.
As someone who lives in SF, I really enjoyed this piece! When I first heard about Bay Wheels previously, it took me a while to realize that people were referring to the Lyft bikes (instead of something actually branded as “Bay Wheels”). I didn’t realize these bikes were so unprofitable, but it makes sense considering how many unprofitable businesses there are and VC culture. I think this distinction between good services vs good business is really interesting - a little unintuitive for me and something that I don’t think about a lot normally given our heavily capitalist culture. Thanks for sharing!
The highlighted examples--consumer price and data sharing--are both easily contractible. The obvious alternative for San Francisco is to renegotiate its contract with Lyft.
The economic force thought to determine the social desirability of public or private provision is instead what's not easily contractible. Government cost and consumer prices are easily contractible, so Lyft as the residual claimant of profits has incentives to make the outsourced program more efficient. But if bike upkeep is not easily observable, then the government may be concerned that Lyft will cut corners. The foundational paper laying out this idea is Hart, Shleifer, and Vishny (1997). Section 3.2 of Glaeser and Poterba (2020) discusses it in the context of transportation infrastructure.
https://scholar.harvard.edu/files/shleifer/files/proper_scope.pdf
https://www.nber.org/system/files/working_papers/w28215/w28215.pdf