The Costs of Home-Sharing Platforms
— March 2, 2018
By John J. Horton and Apostolos Filippas
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.
John Horton is an Assistant Professor of Information, Operations and Management Sciences. Apostolos Filippas is a PhD candidate at NYU Stern.