May 23, 2016

Q&A: The impact and evolution of the sharing economy

Last week, Pew Research Center released a new report that examined Americans’ usage of and exposure to the sharing economy, as well as their views on a number of issues associated with some of its services. To further examine the potential impact of these new digital services on the future of work, government regulations and the economy as a whole, we interviewed Arun Sundararajan. Sundararajan is a professor of business at New York University, a leading expert on the sharing economy and the author of the new book “The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism.”

Arun Sundararajan
Arun Sundararajan, professor of information, operations and management sciences at New York University. (Photo Credit: New York University)

In your view, what are the key characteristics of the sharing or peer-to-peer economy that make it interesting to study?

Before we begin, I’ve been reading through your findings, and they are fascinating. They represent some of the most interesting results I’ve seen about the sharing economy to date. True, there’s a fair bit of ambiguity about what the sharing economy is – perhaps in part because “sharing” has a noncommercial connotation that isn’t ideally descriptive. I prefer the term “crowd-based capitalism,” but continue to use “sharing economy” because it maximizes the number of people who know what I’m talking about (and now, with the new book out, I’m pretty committed).

In my book, I define the sharing economy as an economic system with the following five characteristics, all of which make it interesting to study:

  • Largely market-based: The sharing economy creates markets that enable the exchange of goods and the emergence of new services, resulting in potentially higher levels of economic activity.
  • High-impact capital: The sharing economy opens new opportunities for everything, from assets and skills to time and money, to be used at levels closer to their full capacity.
  • Crowd-based “networks” rather than centralized institutions or “hierarchies”: The supply of capital and labor comes from decentralized crowds of individuals rather than corporate or state aggregates; future exchange may be mediated by distributed crowd-based marketplaces rather than by centralized third parties.
  • Blurring lines between the personal and the professional: The supply of labor and services often commercializes and scales peer-to-peer activities like giving someone a ride or lending someone money, activities which used to be considered “personal.”
  • Blurring lines between fully employed and casual labor, between independent and dependent employment, and between work and leisure: Many traditionally full-time jobs are supplanted by contract work that features a continuum of levels of time commitment, granularity, economic dependence and entrepreneurship.

Can you talk briefly about how economists are attempting to measure and evaluate the broad economic impact of the sharing economy?

Most research from academic economists has focused on trying to design better sharing-economy marketplaces, rather than quantifying its broader impact, or measuring the magnitude of the freelance workforce. The approach is typically to partner with one existing marketplace and to either analyze transactional data following a design change, or to run randomized trials or a field experiment. I like the work done by some younger scholars such as John Horton, Andrey Fradkin, Chiara Farronato, Zoe Cullen, Georgios Zervas and Michael Luca, as well as the measurement and policy work from Steve Tadelis, Alan Krueger, Seth Harris and Jonathan Hall.

My own approach tends to ask broader questions, uses data from (and surveys of users of) multiple platforms, and pays a great level of attention to the “structural” aspects of the economic effects before I take my analysis to the data.

What does your research show about the potential benefits – as well as potential downsides – of these new ways of making money?

In some of my own work, I take a stab at quantifying impact by imagining an economy in which, in addition to buying new and used products, consumers can rent from each other through a peer-to-peer market. The main projections from my analysis (using data from Getaround) are that an economy grows as it transitions into being more sharing-oriented even as ownership drops, and the gains are captured primarily by people below median income. Thus, over time, the sharing economy has an equalizing effect.

A key potential downside is the loss of the social safety net – the insurance, income stability, paid vacations and other fringe benefits that are critical to the well-being of workers. My work suggests that inventing a new funding model is at the heart of the solution. Nobody disputes that we need to protect workers. But the old funding model – the employer funds benefits in exchange for a commitment of full-time work – doesn’t transition well to the sharing economy. We need a new individual-platform-government partnership model.

Do you expect to see state and federal governments taking a more active role in regulating these services over the next few years, or will this continue to be a largely local issue?

The reason why all the regulatory scrutiny [thus far] has been from city agencies is because the most salient services involved – mobility and accommodation – have historically been governed at the local level. As I discuss in my book, there’s a misfit between regulatory interventions that were necessary in the past and the new models. So the conflict isn’t surprising. Nobody’s in the wrong – it’s just that we need to rethink and reinvent regulation, rather than trying to retrofit. I expect to see far more state and federal involvement, especially in the mobility space. This is especially likely as autonomous vehicles come of age. I also expect to see a lot more regulatory delegation to nongovernmental stakeholders like the platforms, trade associations and provider collectives.

How have these services and the debates surrounding them evolved outside of the U.S., especially in larger emerging markets like India and China?

The conversation has been quite diverse, often in surprising ways. For example, it seems like regulatory resistance to Airbnb has been the strongest in New York, while Paris has become a poster child for how to rapidly define and implement balanced new laws to legalize Airbnb activity. (If one had to predict a few years ago which of the governments – New York in the U.S. or Paris in France – was more likely to resist entry by a Silicon Valley based disruptive platform, I think most people would have predicted the opposite.) Part of this difference might have to do with the global success of France-based platforms like BlaBlaCar and La Ruche Qui Dit Oui, and part of it is because of a point highlighted earlier – the politics are local rather than federal/central.

The potential is really immense in China and India, and not just because of their population and rapidly growing economies. There are hundreds of millions of new members of the middle class who are coming of age as consumers during the era of the sharing economy. They don’t have to readjust from decades of ownership-based consumption. Instead, they’ll simply adopt sharing behaviors more naturally. So in a few years, perhaps calling a luxury Didi Chuxing or Ola car whenever you need one will supersede buying your first car as the symbol of success or “I’ve arrived” in these economies.

Category: Social Studies

Topics: Economic and Business News, Economics and Personal Finances, Emerging Technology Impacts

  1. Photo of Monica Anderson

    is a research associate focusing on internet, science and technology at Pew Research Center.

  2. Photo of Aaron Smith

    is an associate director for research at Pew Research Center.

1 Comment

  1. Chris Pine4 months ago

    Many decades ago there was a utopian novel, “The Troika Incident”, that essentially posited a universal labor exchange mirroring a capital market exchange. The “safety net” was also a third leg of the political-economic stool, that gave everyone universal access to the same pool of health and education benefits. The cost of goods, including systems-in-common (roads, power distribution, etc) was the risk-profit remaining after setting aside market-values for labor and services. Much of what was labor intensive was cooperative “Third Way” based.