Wednesday, October 09, 2013

Why New York is not Silicon Valley. is having trouble with NY authorities.

New York State Attorney General Eric Schneiderman has issued a wide-ranging subpoena to Airbnb, demanding information on the fifteen thousand or so city residents who have put their residences up for rent on the Web site.

The state found airbnb in violation of the local law regulating hotels, which the NY law enforcement officials are eager to apply to the new business model. As The New Yorker notices,

Airbnb is challenging entrenched economic interests (the hotel industry) and a system of regulation that’s designed to deal with corporate hoteliers, not individual landlords. Ride-sharing companies like Lyft and Uber have been wrestling with a similar problem, since they represent a serious economic challenge to taxi companies; I wrote about this in September. Regulators tend to be somewhat wed to the status quo, and, even if unconsciously, they often adopt the perspective of those they regulate.

One of the biggest advantages of Silicon Valley is that local authorities do not interfere with innovation, and established companies do not use their political muscle to maintain the status quo. As Acemoglu and Robinson showed in Why Nations Fail, a close alignment between political and business elites can harm innovation because it creates barriers to startups that try to disrupt old business models. The entrepreneurial culture of Silicon Valley abhors backward-looking business regulations; and for a good reason!

Source: Startup Ecosystem Report. 2012.

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