Research Highlights

The Costs of Home-Sharing Platforms

By John J. Horton and Apostolos Filippas

John J. Horton and Apostolos Filippas

Horton and Filippas show that individual tenants left to their own devices might rent rooms out too often, while cities may artificially distort the market and inefficiently limit - or even forbid - sharing activity.

In today’s sharing economy, whether you own an apartment building or live in one, at some point the building’s policy on home-sharing via platforms such as Airbnb or HomeAway will become a hotly debated topic. Research from NYU Stern Professor John J. Horton and PhD candidate Apostolos Filippas delves into the negative externalities of apartment-sharing: short-term rentals can impose costs on neighboring tenants including noise, disregarding building rules, common resource congestion, and uncertainty.

In “The Tragedy of your Upstairs Neighbors: When is the Home-Sharing Externality Internalized?”, the authors argue that previous regulatory approaches are unlikely to work in the home-sharing context, and examine alternative policies that can address this problem. They propose a market-based, decentralized approach, and consider what would happen in four different scenarios, based on who has the right to set policy on whether apartments can be listed for short-term rental on a sharing platform. Each party – individual tenants, building owners, the municipality, or social planners – has different incentives and different exposure to the costs of home-sharing.

Horton and Filippas show that individual tenants left to their own devices might rent rooms out too often, while cities may artificially distort the market and  inefficiently limit - or even forbid - sharing activity. Instead, they show that the socially efficient amount of hosting is obtained when the decision building owners can choose a building-wide home-sharing policy for their buildings, to which the tenants then have to conform to. Further, they find that when building owners choose a home-sharing policy, market rental prices are not affected, finding supporting evidence in a data set of more than 22,600 New York City rental listings. The authors also explore additional real-life considerations, such as how tenant moving costs might affect their findings.

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John Horton is an Assistant Professor of Information, Operations and Management Sciences. Apostolos Filippas is a PhD candidate at NYU Stern.