Regulating Innovation in the Collaborative Economy: An Examination of Airbnb’s Early Legal Issues

Abstract

Airbnb, a service through which ordinary people rent out their spaces to tourists, has become one of the most prominent companies in the collaborative economy. Hundreds of thousands of tourists sleep in Airbnb accommodations every night, yet a large number of these accommodations are actually illegal according to many jurisdictions’ regulations on short-term rentals. This situation has made regulatory conflict an omnipresent issue for the company. Such regulatory tensions actually define the early years of many major innovations because the innovations are not perfectly compatible with existing regulatory frameworks. Moreover, Airbnb is a disruptive innovation within the collaborative economy, and operating within a tightly regulated industry, which made regulatory conflicts virtually inevitable for the company. Airbnb’s rapid growth has forced policymakers to urgently rethink their applicable regulations by assessing the primary issues and impacts, both positive and negative, surrounding Airbnb—tourism, taxes, consumer protection, and local residents. In response, destinations have taken different approaches to regulating Airbnb, centred on renting restrictions, permits, enforcement, and taxes. As the regulatory landscape continues to evolve, more and more destinations will look to overcome the challenges associated with legalising, regulating, and taxing Airbnb.