It’s time for government agencies to regulate the sharing economy! Right…?

$335 billion—that’s the projection for the sharing economy’s global revenue by the year 2025.[1] The rise of the sharing economy—an economic revolution disrupting traditional notions of buyers, and sellers—has drastically expanded the amount of peer-to-peer commercial interactions in industries ranging from transportation to hosted accommodation to restaurant services. Uber, Airbnb, and Meal Sharing are just a few of the technological platforms that facilitate peer-to-peer interactions by allowing two individuals to interact without intermediation by a third party or business. These platforms often mimic, well established, regulated industries like the taxi, hotel, and restaurant industries. Not surprisingly, regulators across the country on state and local levels are scrambling to take action and regulate these industries for the same reason their real-world counterparts are regulated. And the sharing economy actors should be regulated . . . right?

The arguments for regulating the players in the sharing economy are hardly novel to regulators: public safety, fair business, lost tax revenue, and the like. Many of the regulations implemented in the industries that these peer-to-peer interactions mimic exist for consumer protection. Others exist to shift risk and liability off of the shoulders of individuals and onto corporate balance sheets or to ensure that all businesses are putting their share of pennies earned into the state’s coffers.[2] For this reason, state and local regulators are jumping at the opportunity to regulate this new and developing commerce structure.

The National League of Cities reported that 17 of the 30 most populous cities in America have enacted policies regulating ridesharing or homesharing; another 9 have policies pending on the same topics.[3] State level regulators are playing an even more prominent role in regulating the sharing economy. Their efforts range from California’s Public Utility Commission which implemented a complex regulatory framework for ridesharing companies to Arizona Governor Jan Brewer’s veto of a bill that would have legalized ridesharing across the state.[4]

So it’s clear, our activist state is doing the right thing—these sharing economy industries need to be regulated, and state and local agencies are the ones that should be doing it. . . Not So Fast!

Traditional regulatory schemes are aimed at correcting market failures in traditional commercial industries. But, as aforementioned, these sharing companies do not operate under traditional commerce schema and are thus unlikely to be receptive to that type of regulation. For example, traditional regulation schemes are often aimed at solving public safety problems created by information asymmetries between consumers, buyers, sellers, and producers. Traditional regulators attempted to solve this problem by providing each of those parties with a baseline knowledge of the safety to be expected in a specific industry.[5] However, in the sharing economy, the technological facilitators, like Uber and Airbnb, take it upon themselves to reduce these information asymmetries and correct this traditional market failure internally. It would then be unnecessary for regulators to get involved in areas which the sharing companies are self-policing. But, it would be contrary to the very notions that surround commerce regulations in America to allow these sharing economy industries to run free of regulation merely because traditional regulation schema are unnecessary and ill-suited for the job.

Solution: Self-Regulation?

Self-regulation, the reallocation of regulation responsibilities to someone other than the government, is widely implemented in today’s economy and has been for a significant period of time.[6] In a recent University of Chicago Law Review article, Molly Cohen & Arun Sundararajan illustrate the regulatory challenges created as a result of the sharing economy’s characteristics: information saturation and blurred boundaries between personal and professional activity. In the article, the authors propose reallocating regulation responsibilities from the government to the technological facilitators of the peer-to-peer interactions that occur in the sharing economy as a solution. The authors describe this type of self-regulation as a “natural byproduct of economic exchange” and contend that, like the contemporary self-regulation regimes currently implemented in the United States, self-regulation of the sharing economy industries would be largely successful.[7]

The contemporary industries referenced by the article are largely peer-to-peer industries, the keystone of the sharing economy. Peer-to-peer industries operate outside of a centralized marketplace, making it difficult for traditional regulatory frameworks to be effective, thus requiring alternative systems of regulation. Sharing economy industries also display many of the other characteristics that make an industry suitable for, and compatible with, self-regulation. Like many non-sharing economy industries that have successfully implemented self-regulation, sharing economy industries are associated with public goods, conducted through a facilitator with the ability to enforce regulations through measures such as suspension, sanctions, or expulsion, and are able to practically conduct transparent business. [8] Further, because the sharing economy is largely facilitated through new technologies with unparalleled data collecting abilities, creating and operating a self-regulation framework appears not only appropriate and feasible, but wholly practical.

Accordingly, the major players in the sharing economy have taken notable efforts in support of a self-regulation system. Uber, for example, has made considerable expenditures in efforts to acquire the services of top dollar lobbyists and former governmental officials in hopes that they will persuade regulators to ease back in their efforts to regulate the ride-sharing industry.[9] One of the leaders in the ridesharing industry, Uber has also established a network comprised of public relations specialists and consultants in order to gain the support of the court of public opinion as well as regulators.[10] Uber’s spokesperson, Nairi Hourdajian, cited supporting innovation, promoting competition, and improving the status quo as just some of the justifications of abandoning traditional notions of regulation in the sharing economy.[11]

This self-regulation solution is not without critique, and certainly would not allow sharing companies to run wild over the creation and implementation of their regulatory systems. Transparency and government oversight would remain essential in order to establish credibility in a self-regulating authority; however, as various self-regulating authorities have proven, it can work in the long run if done right.[12]

So, be cautious policy-makers; while you may have good intentions, there may be a better way to skin the cat when regulating the sharing economy.


The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

Chris Stackhouse is a General Member for MJEAL. He can be reached at ctstack@umich.edu

 

[1] Five Key Sharing Economy Sectors Could Generate £9 billion of UK revenues by 2025, PricewaterhouseCoopers (Aug. 15, 2014, 12:01 AM), http://pwc.blogs.com/press_room/2014/08/five-key-sharing-economy-sectors-could-generate-9-billion-of-uk-revenues-by-2025.html.

 

[2] Molly Cohen & Arun Sundararajan, Self-Regulation and Innovation in the Peer-to-Peer Sharing Economy, 82 U Chi L Rev Dialogue 116, 116–17 (2015) (describing the motivations for traditional regulatory schemes); Nicole DuPuis & Brooks Rainwater, National League of Cities, The Sharing Economy: An analysis of Current Sentiment Surrounding Homesharing and Ridesharing (2014).

 

[3] DuPuis & Rainwater, supra.

 

[4] Id.

 

[5] George A. Akerlof, The Market for “Lemons”: Quality Uncertainty and the Market Mechanism, 84 Q J Econ 488, 493–94 (1970).

 

[6] Cohen & Sundararajan, supra at 116.

 

[7] Id. at 125–32 (explaining what makes self-regulation work for non-sharing economy industries and why self-regulation is appropriate for sharing economy industries).

 

[8] Id. at 129–30.

 

[9] Juan Gonzalez, Uber Using Any Means Necessary to Crush Attempts to Regulate its Practices, New York Daily News (July 23, 2015, 12:45 AM), http://www.nydailynews.com/news/politics/
uber-determined-fight-attempts-regulation-article-1.2299791; Anna Palmer, Lobbying Drives Uber’s Expansion, Politico (Aug. 19, 2014, 2:56 PM), http://www.politico.com/story/2013/09/
uber-taxi-lobbying-expansion-097028.

 

[10] Pamer, supra.

 

[11] Id.

 

[12] Cohen & Sundararajan, supra at 131–32 (explaining the challenges of implementing self-regulatory frameworks).

 

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