The Blog

The Sharing Economy

Posted on September 22, 2015

By: Gary Ashcroft

The sharing economy has become an idol of the modern business world, with the success of companies in this field suggesting that the sky is the limit. Room-sharing service Airbnb is projected to rake in over $900 million this year, while ride-sharing facilitator Uber is expected to net around $2 billion. Beyond its expanding profits, the sharing economy has also expanded into new fields. For example, there are now businesses that allow people to share boats (Cruzin), meals (EatWith), and even barstools (SnagaStool). However, as the sharing economy has grown in both profits and scope, it has also increasingly come into conflict with regulators and law enforcement. Just this April, police in Atlanta cited an Uber driver and impounded his car after he attempted to pick up a passenger at Hartsfield-Jackson International Airport, while even more recently Uber executives in France were arrested for allegedly running an “illegal taxi company.” These two incidents are only a small subset of the many regulatory clashes in which government and the sharing economy have engaged. However, going forward, regulators can avoid such controversy-ridden events by enacting regulations that provide needed safeguards while also allowing society to reap the benefits of the sharing economy.

First, let’s talk about the benefits of the sharing economy. As detailed in a recent MIT study, the sharing economy could lead to lower carbon emissions (due to ride-sharing), decreased traffic congestion, and increased consumer savings. Furthermore, sharing companies may have a positive impact on cities’ tourist revenues. Supporting this contention is a recent study of Airbnb’s operations in San Francisco, in which researchers found that room-sharing guests tended to stay longer in the city than did regular hotel patrons and that they also tended to spend more in the local economy. Finally, sharing companies may also benefit racial minorities; some African Americans report that, whereas traditional taxi services often discriminate against them, they have a much easier time finding rides through ride-sharing apps like Uber and Lyft.

However, while there are many benefits associated with the sharing economy, there are also potential drawbacks. For example, the proliferation of room-sharing services in some areas has led to increased housing prices, with this driving out longtime residents and contributing to the process of gentrification. In addition, although some African Americans and other minorities report that ride-sharing services have made it easier for them to hail a cab, others contend that ride-sharing companies “redline,” i.e. generally avoid, poorer minority neighborhoods. Besides concerns about alleged racial discrimination, regulators are also worried about health risks. Prominent among their worries is the advent of meal-sharing services, businesses that enable people to gather in someone’s private home to share a meal. Some officials, like those in San Francisco’s public health department, contend that such companies are facilitating the operation of illegal, unregulated restaurants and that people who choose to meal-share are eating food prepared by someone with unknown food-safety experience.

As regulators attempt to make sense of the tangle of competing interests surrounding the sharing economy, it may be wise for them to remember a few things. First, it is unlikely that they will be able to maintain current regulations. The sharing economy is no longer a fledgling industry with limited political power. To the contrary, it is now a multi-billion dollar sector with significant legislative sway and the ability to effectively mobilize multitudes of consumers to lobby on its behalf. Second, maintaining the current status quo, where sharing-economy actors are largely exempt from regulations while more conventional companies, like cab services and the hotel industry, are still subject to strict government oversight, is possibly unconstitutional. Treating sharing businesses differently from traditional companies could violate the Equal Protection Clause of the Constitution, which guarantees persons equal treatment before the law. Constitutional arguments to the side, it is also extremely unfair to allow sharing companies to undercut the prices of conventional businesses by dodging regulations that those businesses can’t escape. Finally, regulators should remember that sharing companies have a strong incentive to self-regulate. One abduction of an Uber passenger or one outbreak of food poisoning among EatWith patrons could do substantial harm to the trust consumers place in those companies, with trust being the underlying principle driving the sharing economy.

With all this in mind, policymakers would be wise to approach regulation of the sharing economy with the intent of finding a balanced solution. Unquestionably, new regulations should be tailored to the sharing economy, and government should be aggressive in fighting discrimination based on race, religion, disability, gender, and sexual orientation in this sector. However, at the same time lawmakers should keep in mind the political realities that result from the sharing economy’s legislative clout, and they should tailor their proposed ordinances with an eye towards avoiding constituent backlash and constitutional violations and facilitating the self-regulation that is inherent in this emerging field. As lawmakers and regulators embark on such a moderate, reasoned course of action, they can be assured that they will successfully navigate the stormy waters of the sharing economy.