Precautionary Federalism and the Sharing Economy

• Citation: Vol. 66 No. 2
• Publication year: 2017

Precautionary Federalism and the Sharing Economy

Sarah E. Light

PRECAUTIONARY FEDERALISM AND THE SHARING ECONOMY

Sarah E. Light^*

Abstract

The rise of the sharing economy exposes cracks in legislative and regulatory regimes designed with a different vision of the economy in mind. To date, scholars and policymakers have focused primarily on whether and how the government should regulate the sharing economy—that is, on what form, if any, regulation should take. This Article focuses on a logically antecedent question—who should decide. Using the potentially significant, yet uncertain, environmental impacts of Uber and Lyft as a case study, this Article argues that regulatory authority should be allocated according to the principle of precautionary federalism. Just as the precautionary principle tells us that regulation can proceed in the face of uncertainty about significant environmental, health, or safety risks, precautionary federalism embodies a default presumption in favor of multiple regulatory voices, and against broad exercises of preemption under such conditions. The presumption must be weighed against values favoring uniformity, taking into account trade-offs across different kinds of risks. And precautionary federalism is time-bound—it acknowledges that greater certainty about impacts may warrant a shift from one allocation of authority to another. This precautionary approach can serve an information-forcing function about the significance of uncertain impacts, and offers the best way to achieve the kind of rules called for by the precautionary principle.

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Introduction..............................................................................................335

I. A Precautionary Approach to Federalism...............................345

A. The Precautionary Principle ..................................................... 346
B. Dual Federalism ........................................................................ 350

1. Uniformity versus Regulatory Competition ......................... 351
2. Spillovers, Externalities, and the Matching Principle......... 353
3. Public Choice Theories ....................................................... 354
4. Good Governance and Non-Consequentialist Theories ...... 355

C. Dynamic Federalism ................................................................. 357
D. Precautionary Federalism ......................................................... 360

II. Uber/Lyft's Uncertain Environmental Impacts......................365

A. How Uber/Lyft Work ................................................................. 365
B. The Potential Environmental Impacts of Uber/Lyft ................... 366
C. Demographics of Uber/Lyft ....................................................... 370

III. Existing and Emerging Legal Frameworks...............................372

A. Federal Preemption of Vehicle Emissions Standards................ 372
B. State Preemption of Local Governance ..................................... 376

IV. Law and Policy Implications .......................................................382

A. A Precautionary Approach........................................................ 382

1. Uniformity and Interstate Spillovers ................................... 384
2. Public Choice, Laboratories of Experimentation, and Good Governance ................................................................ 385
3. Informational Benefits ......................................................... 387

B. Broader Applications of Precautionary Federalism ................. 390

Conclusion..................................................................................................393

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Introduction

The rise of the "sharing economy" challenges many of our previous assumptions about the law.¹ In areas as diverse as employment, insurance, privacy, and civil rights law, new firms like Uber and Lyft are rewriting traditional economic relationships both within and outside the firm.² These new business models do not easily fit into legislative, regulatory, or doctrinal schemes designed with a different vision of the economy in mind.³ Scholars and policymakers are grappling with whether and how to govern these new firms.⁴ Some advocate a free market, contending that regulating Uber/Lyft will stymie innovation.⁵ Others favor regulation, contending that failure to regulate will place Uber/Lyft at a competitive advantage over existing firms.⁶ Still

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others ask what form such rules should take.⁷ But before determining whether and how to govern, we first ought to determine who should govern.

In some instances, the answer to this question may be straightforward. Dual federalism theory distinguishes the types of problems that would be better served through uniform federal rules or state experimentation.⁸ Which of these two regulators is optimal may depend, for example, upon whether the problem will generate interstate spillovers or inspire states to "race to the bottom" by setting the most lax environmental standards to attract investment, jobs, and tax revenue. In contrast, advocates of dynamic federalism have argued that overlapping jurisdiction across different levels of government can facilitate experimentation and policy diffusion, promote good governance, and even serve the national interest.⁹ Recently, scholars of both "localism" and

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"federalism" have begun to recognize the independent interests and capacity of local governments in these debates.¹⁰ And some of the legal issues or impacts arising out of the sharing economy may interact with these debates in relatively straightforward ways. What is missing from this federalism scholarship, however, is a deep, express analysis of the role that uncertainty about potentially significant, even irreversible, impacts, such as the effect of innovative technologies and business models on climate change, should play in these analyses. This is not the traditional domain of federalism theory, but rather of the precautionary principle.¹¹

At its heart, the precautionary principle tells us that it is better to be safe than sorry in the face of significant risk of irreversible harm, even if we are uncertain about the magnitude of the risk.¹² This Article's central claim is that

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what I call precautionary federalism offers a more complete answer than either dual or dynamic theories of federalism to the question of who should regulate under conditions of uncertainty. It also suggests an answer to a related question: for how long. Thus, precautionary federalism takes lessons from debates over the precautionary principle to a different context—the allocation of authority across different levels of government.

Precautionary federalism has three primary features.¹³ First, it embodies a default presumption in favor of multiple regulatory voices and against broad exercises of preemption under conditions of uncertainty about potentially significant environmental, health, or safety impacts of innovative technologies or business models. This approach can promote information generation, interest group interaction in multiple fora, and tailoring of policy to local conditions. Second, precautionary federalism takes a "wide viewscreen" approach to risk-risk trade-offs.¹⁴ It recognizes that concerns regarding uncertainty about one type of risk must be weighed against other risks. The value of promoting policy experimentation under uncertainty must also be weighed against competing values—such as promoting innovation—that may support more uniform rules. And third, precautionary federalism is time-bound. It acknowledges that greater certainty about impacts may warrant a shift from one allocation of authority to another, such as from regulatory overlap to greater consolidation. Put simply, when uncertainty is at its height, the benefits of policy experimentation and information gathering are at their highest and the need for precaution and experimentation is most acute; when greater certainty is achieved, more regulatory uniformity may become appropriate. Allocating authority through a lens of precaution can serve an information-forcing function about the significance of uncertain impacts and

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offers the best way to achieve the kind of rules called for by the precautionary principle.

Precautionary federalism thus differs from a traditional dual federalism approach because it recognizes the value of dynamic, overlapping authority under conditions of uncertainty about the impact of innovation on potentially significant—even irreversible—risks of harm. But a precautionary approach also differs from dynamic federalism. While the principle recognizes the value of dynamism under conditions of uncertainty as a default presumption, it acknowledges the possibility that greater certainty regarding potentially significant impacts, or other values, may shift the balance in favor of a single regulator and uniform, federal rules. This possibility of a shift is crucial for the approach's information-forcing function. Firms, which often prefer regulatory uniformity,¹⁵ may be willing to provide information about risks or modify their business practices to reduce risks to achieve greater regulatory certainty.

The case study I focus on here—Uber/Lyft's environmental impacts—poses a particularly acute form of this uncertainty problem because three different types of uncertainty interact: regulatory uncertainty (what is the best policy), uncertainty about the magnitude and direction of Uber/Lyft's potentially significant impact on the climate (as well as other local impacts), and uncertainty about how Uber/Lyft's business model may change over time (in response to either market or regulatory conditions).¹⁶ But the rise of Uber/Lyft also provides a motivating opportunity to rethink current allocations of authority over transportation emissions more broadly. Like other firms in the sharing economy, Uber/Lyft play an aggregative...