Betwixt and Between: Regulating the Shared Economy

Abstract

Airbnb, Uber, Eatwith, and other sharing economy platforms facilitate short-term rentals, transportation, meals, and even pet sharing. These “sharing economy” companies are part of what is also called “collaborative consumption” or “the peer-to-peer economy.” The companies in the sharing economy use technology to connect people who have private excess capacity to those who want to purchase it. Rather than staying in a hotel, customers can stay in a spare bedroom through Airbnb; rather than hiring moving companies, customers can get help moving via TaskRabbit; rather than going to a restaurant, customers can have a meal prepared for them in someone’s home via Eatwith.TIME Magazine listed the sharing economy as one of the ten ideas that will change the world, and Forbes estimates that the revenue flowing through the sharing economy will surpass $3.5 billion in 2014, with growth exceeding 25%. At that rate, peer-to-peer sharing is moving beyond a fringe movement and becoming a disruptive economic force. Look only to Airbnb, which at six years old has a valuation of $13 billion, much higher than the Hyatt hotel chain ($10 billion), and Uber, which at four years old has a valuation of $40 billion, greater than Hertz, Avis, and Enterprise combined. Companies using this relatively new business model have faced innumerable legal challenges. In some places, platforms are simply banned from operating; in others, supply-side users or the platforms themselves are punished. The reason for the difficulty and uncertainty is that the sharing economy is in a “betwixt and between space” — it does not fit within existing legal frameworks. Platforms view themselves as online companies regulated by Internet law, though they execute mostly in the offline world. Furthermore, sharing economy platforms are facilitating transactions that have always been legal, but are now executed on such a large scale that the potential for harm to the public is very real. What are the rules when the lines blur between giving a friend a ride to the airport and operating as a professional driver?This paper argues that existing laws cannot effectively regulate the sharing economy, because the sharing economy is uniquely comprised of individuals profiting from their personal excess capacity. These individuals operate microbusinesses, which cannot, without devastating consequences, be regulated like traditional businesses. The paper proposes a new framework for regulators that will support the benefits of the sharing economy while still achieving regulatory goals such as fraud prevention, safety, revenue, risk allocation, and fair competition.