Disciplining the Sharing Economy

SINGAPORE – The increasing ability of people to exchange goods, services, and labor directly, via online platforms, is transforming how modern economies operate. But to ensure that the rise of the “sharing economy” works efficiently and improves conditions for all parties, some regulation is needed.

People can now circumvent many traditional service businesses. They can share transport, using Uber, Lyft, or RelayRides; provide accommodation through Airbnb; tender household chores via TaskRabbit, Fiverr, or Mechanical Turk; and arrange their grocery deliveries using Favor and Instacart. Similarly, crowdfunding platforms, such as Kickstarter and Lending Club, allow start-ups to raise grants, loans, or investment from the general population, rather than relying on a financial intermediary.

By cutting out the middleman, these online platforms empower individuals, reduce transaction costs, and create a more inclusive economy. But their evolution is far from straightforward, and many such services will require careful regulation if they are to flourish – as protests and court rulings in Europe against Uber demonstrate.

One reason why Uber and other sharing-economy pioneers are so disruptive is that they represent a highly efficient form of peer-to-peer capitalism. Buyers and sellers can agree directly on the price of every transaction, and business reputations depend on transparent customer feedback, generating continuous pressure to improve performance.