Uber and the hedging of taxi drivers' wealth risks

di Marco Liera - 29/05/2014

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"It 's our severance pay ." The taxi driver who picked me up outside Bari airport heard of anti-Uber protest of his colleagues in Milan. He says that his taxi medallion is the only asset he owns, adding that he borrowed money in order to purchase it. Like many other taxi drivers. Can we say that these purchases were somehow insane financial decisions? We should judge on a case by case basis.

Then I read on the FT that Uber is negotiating a new funding round, which would boost its valuation to $ 10 billion. That is three times the price tagged just nine months ago, on its last funding round. Not bad for a company that was founded just five years ago.

It’s the economy, stupid!

It occurs to me that in his latest book Nobel laureate Robert Shiller shows how financial innovation can create widespread prosperity rather than destroy it. And then I wonder: how can we reduce the financial risks of groups like taxi drivers whose wealth is concentrated in a medallion? Taxi drivers’ case is different from entrepreneurs’ one, because their business is highly regulated, a real public service. Their wealth is exposed both to the economic cycle, and to the aggression of rulebreaking newcomers like Uber. A newcomer that in Chicago has already caused a devaluation of taxis medallions, but in New York City where it accounts only for 0.17% of the pickups - has not, at least for now .

I believe taxi drivers should set up a fund aimed at stabilizing the value of their medallions, financed from their pockets when they stop paying their debts and invested in triple-A euro denominated bonds. A fund with solidarity mechanisms for those who are not able to contribute. Moreover, why not negotiate with Uber an underwriting of warrants on the company stock? It would set an almost ideal decorrelation. If Uber continues to beat expectations, the value of the warrants would rise, partially offsetting the likely devaluation of the medallions. If such transaction had been made nine months ago, the performance for taxi drivers would have already been stellar. Sure, the founders, investors and managers of Uber should have been waived part of their upside. But maybe they would have avoided Milan taxi drivers egg-throwing to one of them.

It’s the sharing economy, stupid!

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