Trusting the ‘Sharing Economy’ to Regulate Itself

By Arun Sundararajan

Headshot of Arun Sundararajan

Not surprisingly, there’s a misalignment between the rules developed for the older, industrial-age, “analog” ways of shared consumption, like staying in hotels or hailing taxis, and the peer-to-peer business models enabled by the new digital platforms.

A variety of Internet-enabled platforms for peer-to-peer commerce seem to be under regulatory siege. If settlement talks fail, Airbnb is heading to court to challenge a wide-ranging subpoena for New York City host information issued by the New York State attorney general. The urban transportation platforms Uber, Lyft and Sidecar have battled regulators in numerous cities – for instance, Sidecar left New York last spring after a sting by agents of the Taxi and Limousine Commission during a pilot program in Brooklyn led to the impounding of a driver’s car. A consortium of cabbies and drivers recently sued the city of Chicago with a claim that the city has allowed “unlawful taxi caste system” to emerge. RelayRides, a peer-to-peer car rental marketplace, suspended operations in New York a few months ago after being told that a regulator “believes there is noncompliance with certain unique aspects” of New York insurance law.

This is unfortunate, because the emerging peer-to-peer, collaborative “sharing economy” will be a significant segment of the country’s future economic activity, stimulating new consumption, raising productivity and catalyzing individual innovation and entrepreneurship. There’s a real danger that today’s misalignment between newer peer-to-peer business models and older regulations will impede economic growth. The solution is to delegate more regulatory responsibility to the marketplaces and platforms while preserving some government oversight, by creating new self-regulatory organizations like those that have succeeded in other markets and industries.

It’s not as if today’s city and state regulations are fundamentally flawed. They’re not. It’s simply that this wave of digital disruption is altering how we experience familiar services — short-term accommodation, point-to-point urban transportation, car rental. The economic engine at work here is an array of new peer-to-peer marketplaces that unlock dormant physical capital (real estate, vehicles, household assets) and put it to productive use, creating, in the process, a wide variety of new consumption experiences (contrast the modest range of hotel rooms with the diversity of Airbnbs), and catalyzing innovation by micro-entrepreneurs who can dip their toes into the world of small business unimpeded by the risks of an all-or-nothing start-up.

Read full article as published in The New York Times

Arun Sundararajan is a Professor of Information, Operations and Management Sciences, NEC Faculty Fellow, and Doctor Coordinator of IOMS-Information Systems.