I have been researching the sharing economy since 2014—when you could search for the term ‘Uber” on Westlaw and only come up with articles in German. My perspective on this “new economy” has very much evolved. I started off, like many, excited about the potential of the sharing economy to connect people, unlock economic potential, and promote more sustainable lifestyles. I argued in my first article on the subject that governments should not impose traditional, ill-fitting regulations on sharing economy platforms. Instead, they should give this nascent industry room to experiment and self-regulate. I believed this approach was appropriate for several reasons. Most notably, I argued that too much regulation (particularly in the form of licensing requirements) would change the incentive calculus for supply-side participants (i.e. Uber drivers and Airbnb hosts) thus causing the user base to collapse. I also argued that self-regulation is possible because reputation systems, which are based on the ratings and reviews given by each party in a transaction, effectively regulate participant behavior.
Furthermore, in that paper, I distinguished sharing economy companies from incumbent firms and made explicit my definition of the former. My definition is grounded in four key characteristics: 1) the company has an online platform; 2) that platform relies on microbusinesses to provide goods and services; 3) the goods and services offered by the microbusinesses consist of their excess capacity in their personal assets and schedules; and 4) the platform facilitates high-powered information exchange about user trustworthiness via reputation systems. If a platform does not demonstrate all four requirements, it is not a part of the sharing economy. This working definition is critical, because without a clear understanding of what the sharing economy is, we cannot begin to understand how it is regulated, how it should be regulated, or who should regulate it.
In my second article, I developed a theoretical approach for regulating the sharing economy, which combined principles of New Governance theory and the concept of lex informatica to form Regulation 2.0 (an idea first mentioned by blogger Nick Grossman). Regulation 2.0 incorporates New Governance design principles, particularly the use of performance standards and audited self-regulation, and technology to efficiently police behavior. Mediated through technology, Regulation 2.0 holds potential to help regulators meaningfully collaborate with stakeholders to efficiently achieve the desired ends of regulation. On this blog, I plan to highlight new Regulation 2.0 approaches.
In March of 2016, I went abroad and immersed myself in the sharing economy. I tried every service I could, from Airbnb to Eatwith, a platform that allows you to find someone who is willing to have you over for dinner for a fee, to Trip4Real (recently purchased by Airbnb), which basically allowed me to hire a friend for the day. From this primary research, I began to exit the honeymoon stage of my love affair with this new economy.
The first problem I noticed related to reputation systems. I had a less than stellar Airbnb experience in Malta (major issues with Internet connectivity, no washer and dryer even though they were explicitly mentioned on the listing, etc.). However, I found that I was personally reticent to give negative feedback. This irrational behavior on my part made me question whether or not the reputation systems are really fed accurate data. As it turned out, my hunch was correct and in my third paper, I synthesized new and existing evidence from the fields of economics, management, and behavioral psychology to demonstrate that feedback scores are likely skewed to the positive. I then discussed the implications of these findings on the risk-calculus for consumers in the sharing economy and the ability of sharing economy companies to self-regulate.
The more time I spent critically examining the sharing economy the more I realized that the big companies within the sharing economy like Airbnb and Uber were not actually meeting my definition anymore. Nowadays, full-fledged businesses (as opposed to microentrepreneurs) are the biggest users of sharing economy platforms like Airbnb and they are not simply utilizing their excess capacity, they are putting new capacity online. By contrast, some platforms are greatly controlling the activities of their supply-side users, which perhaps tip those users into the “employee” category and outside of the microentrepreneur category. Outgrowing my definition was not itself a cause for concern—businesses adapt and change all the time. However, what was concerning was that these companies were still using the positive rhetoric of the sharing economy to avoid regulation either by subverting it all together or by pushing for new regulations that effectively codified their existing business practices.
These observations inspired my most recent paper that is forthcoming in the Emory Law Journal, The Myth of the Sharing Economy and Its Implications for Regulating Innovation. In the weeks to come, I will explain the key ideas in that paper and demonstrate how sharing economy companies use rhetoric to avoid or minimize regulation in the start-up stage and when it is time for regulation, they push hard (and often succeed) to write the rules that govern them.