Tax Fairly and Don’t Promote Arbitrage. The City of Amsterdam has begun to support sharing economies.
Hosts renting their homes to others
pay income and tourist taxes, and
must ensure neighbors stay neighborly. Private individuals do not require
liquor licenses or kitchen inspections
as do major hotel chains. Regulations
that lie between the individual and industrial levels in this fashion can be a
wiser way to handle tax arbitrage. Individuals do pay reasonable taxes that
support the community but do not
pay at industrial levels.
Current laws that gouge one group
to benefit another also need reform.
If technology permits low-fee providers to substitute for high-fee ones,
simplifying and designing laws that
do not promote arbitrage is possibly a
better answer. When was the last time
your airport car rental cost less than
you expected? Sticker shock sets in
when cities impose head, gas, airport,
and other taxes on tourists. Taxi medallions help regulate taxi services,
but also create cartels where medallions offer investment-grade returns
to their respective cities.
7 Taxes on
private cars used in shared services
might make sense because the roads
still require maintenance. However,
balance is essential. Internet-enabled
sharing does not mean “no taxes,” as
Amsterdam has shown.
Create a FICO of Reviews and
Fair Access of Resources
To a great extent, the viability of
shared services hinges on the quality
of review systems because people rely
on them to decide whether and what
to purchase. Authenticating the validity of reviews is critical to prevent
abuse. An independent agency might
help prevent glowing “sock puppet”
reviews or unfair criticisms. Certification might even deflate mutual
excess flattery. Credit scores and information have been monitored in a
similar fashion for many years by several agencies, including FICO. Also
regulators must ensure public access
to public information. Sharing news
must not be used to make public resources private. The sharing economy requires that complete information and trustworthy reputations be
available to all parties.
The problem is not whether to bury
or build the sharing economy: it is already on the ground. The gains are too
great to pass up because of misdeeds
on the part of a few self-serving actors.
The larger opportunity is to move forward despite the disruption. In the
short run, platform firms should indemnify users and self-regulate the
health of their ecosystems. At the
same time, consumers should choose
sharing platforms based on short and
long-term gains as well as individual
and community benefits. Learning
and appropriate regulation for fair
reporting and fraud protection will be
central—although it will need a light
touch to encourage innovation while
still watching for problems. The task
is to share the pain and the wealth. If
this sharing happens, the wealth will
grow and endure.
1. Botsman, R. and Rogers, R. What’s Mine Is Yours: How
Collaborative Consumption Is Changing the Way We
Live. Collins, 2011.
2. Byers, J. W., Proserpio, D., and Zervas, G. The rise of
the sharing economy: Estimating the impact of Airbnb
on the hotel industry. Boston University School of
Management Research Paper (2013).
3. Eddy, M. German court bans Uber service nationwide.
New York Times Bits Blog (Sept., 2, 2014).
4. Eisenmann, T., Parker, G., and Van Alstyne, M. W.
Strategies for two-sided markets. Harvard Business
Review 84, 10 (2006), 92.
5. Erickson, A. The birth of zoning codes, a history.
The Atlantic (June 19, 2012); http://bit.ly/UxVvxZ.
6. Evans, D.S. Governing bad behavior by users of multi-sided platforms. Berkeley Technology Law Journal 27,
7. Keeley, L. N YC taxi medallions wheel in profits rivaling
S&P 500. Bloomberg (Aug. 6, 2010).
8. Knox, R. How Yelp can help disease detectives
track food poisoning. NPR (May 22, 2014); http://n.
9. Lanier, J. Who Owns the Future? Simon & Schuster,
10. Luca, M. and Zervas, G. Fake it till you make it:
Reputation, competition and Yelp review fraud (2013);
11. New York Times Editorial Board. The dark side of
the sharing economy. (Apr. 30, 2014); http://nyti.
12. Rifkin, J. The rise of the sharing economy. Los Angeles
Times (Apr. 6, 2014); http://lat.ms/1AqMff Y.
13. Schrage, M. Who do you want your customers to
become? Harvard Business Review Press, 2012.
14. Sundararajan, A. Trusting the ‘sharing economy’ to
regulate itself. Economix Blog, New York Times (Mar.
3, 2014), http://nyti.ms/1krGSHo.
15. Tam, D. Amsterdam officially approves new Airbnb
friendly laws. 2014; http://cnet.co/1t TJ2kp.
16. The Economist. The rise of the sharing economy. (Mar.
9, 2013); http://econ.st/1r wIfEx.
Arvind Malhotra (Arvind_Malhotra@kenan-flagler.unc.
edu) is a T. W. Lewis Scholar and Professor of Strategy
and Entrepreneurship at The University of North Carolina
Kenan-Flagler Business School, Chapel Hill, NC.
Marshall Van Alstyne ( firstname.lastname@example.org) is an associate
professor in the department of management information
systems at Boston University and a research scientist at
the MIT Center for Digital Business; Twitter: InfoEcon.
Copyright held by authors.
rooms. Improved listing quality doubled revenues.j That led Airbnb to educate its users in how to improve their
listings.k Author Michael Schrage13
points out that investing in customers helps them create more value.
When they can create that value, the
ecosystem wins. Gary Swart, past CEO
of oDesk, had his company partner
with SkilledUP to grant access to thousands of online courses because better-trained freelancers charge more for
their work and deliver higher quality.
Community Policing and Self-Regulation. Platforms can be better than
governments at spotting stalkers,
running background checks on sharing service providers, and responding
quickly to conflicts among members.
Platforms are closer to the action; and
they have an incentive to look after their
communities. That is how they make
6 Venture capitalist Nick Gross-man says peer-sharing systems develop
scalable enforcement, like reputation
systems, that are more inclusive than
licensing regimes. Self-regulation can
work (For examples see The American
Medical Association and National Association of Realtors.
14) Problems with
self-regulation arise from harm to nonmembers, market power, and network
effects that encourage firms to engage
in anticompetitive behavior. But with
care, these problems can be avoided.
Moreover, sharing can also help government regulators. For example,
health inspectors are using Yelp ratings to identify restaurants that may be
sources of food poisoning.
j See http://bit.ly/1gm YXSd.
k See http://bit.ly/1dvNMm1.
The problem is
to bury or build
the sharing economy:
it is already on