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by Mohnesh Gome

BA (H) Economics, Hansraj College


An economy has always been characterized by who owns what assets and who rents them. Ownership of assets has always been the primary parameter to distinguish different economic systems like Capitalism, Socialism and Communism from each other. However in a world of ever-exhausting resources, overpopulated cities and skyrocketing prices, as people are moving toward minimalism the sharing economy is coming out on the surface. "Sharing” of assets was earlier confined within a very small region among a few private individuals, but with the passage of time and technological disruptions, the horizon of the sharing economy has widened extensively with an expected growth of around $300 billion by 2025, from among few private individuals to businesses globally.

Sharing economy has been evolving in the past few years with the evolution of technology. Hence to define ‘Sharing Economy’ exactly, won't be appropriate yet. But one can still explain it as an umbrella that encompasses economic systems like the gig economy, collaborative economy and peer to peer economy in which underutilized or non-utilized assets, services and capitals such as idle old cars, extra house property, wedding gowns or even jewellery are shared between private individuals and among businesses. 

One of the most prominent examples of the sharing economy we get to see nowadays is ridesharing or carpooling services. Companies like Uber, Ola and Lyft have shown how the sharing economy has taken over a substantial proportion of ride services which was earlier captured by the taxis. Other than carpooling or ride sharing, sharing economy has given rise to many industries such as accommodation industries, in particular Airbnb, a company which allows users to rent out their spare rooms or vacant homes to strangers. Just after its few years of its inception, Airbnb offers more properties than some of the world’s largest hotels chains collectively. Sharing economy has brought all the regular or occasional services such as makeover, cleaning, painting and furniture for house at the consumers’ fingertips through platforms like Task Rabbit and Urban Clap.

Proliferation of the sharing economy in the past years has changed the landscape of what economies used to be and brought a new paradigm shift in the economic market. Sharing economy has contributed substantially in enhancing the people’s welfare by creating new transactions that are based on the efficient use of underused assets by the reduction of transaction costs using ICT technology and has given them accessibility to self-employment opportunities to earn some return on their idle assets with the use of use platforms like eBay or OLX, where people put these assets on sale or rent and earn additional income owing to low entry barrier. On the consumer side, they can now enjoy low prices and diverse options with comfort from their home. Sharing economy has also given business participants opportunities to market and test their new good or idea without bearing substantial cost. In the financial sector, the sharing economy has helped many entrepreneurs and organizations to raise funds for their start up or any noble cause through means such as crowd-funding.

Other than economic benefits, ecological benefits of the sharing economy are worth noticing as well. In particular, services such as carpooling could reduce air pollutants (CO2) emissions and it will also lead to reduction in resource depletion by increasing the use of produced assets.

Sharing economy has created platforms that build trust and reduce transaction costs with a diverse array of business or choices for consumers. But there is also no denial that the sharing economy has also raised few concerns for the government and policy makers in the past years.

One of the major concern policy makers or governments have regarding sharing economy is its conflicts with existing businesses as growth of sharing economy crowding out some existing industries that provide same services and good such as taxi services, hotel services and second hand goods businesses by keeping price less than equal to market price but the convenience which people get from sharing economy lure them to move towards it from conventional business. Moreover, the crowding out of existing industries gets exacerbated when regulations are applied unfairly to suppliers of the sharing economy. For instance many hosts on accommodation sharing platforms are not officially registered business operators hence they are not subject to safety and tax related regulations unlike conventional hotel services.

Another concern which the sharing economy encompasses is several transaction risks including information asymmetry, uncertainty in ex-post handling and weak trust in platforms. In most cases the sharing economy involves no face to face transactions of non-standardized services between unspecified individuals. In the sharing economy due to high information asymmetry consumers find it difficult to determine service quality whereas providers face difficulties in knowing and observing consumers which often lead to moral hazard, property damage etc. 

“Revolutions do not happen overnight, they take years to come”. For now, no one knows what sharing economy holds for us in the future but it is certain that proliferation of the sharing economy does promise an array of benefits such as the creation of new transactions, promotional and market testing opportunities, regional self-employment opportunities and reduction in environment cost. However, it is also true that the sharing economy has some risk factors including crowding out of existing transactions or business and social risk. But let’s not forget that during the industrial revolution or when automobiles first debuted on roads, many coachmans or workers protested against it. But down the road we all have seen how automation and industrialization has helped in increasing our productivity and efficiency.

In one survey, 200 leading economists from Korea were asked about the proliferation of the sharing economy, whether it could benefit the overall society if regulatory equity is achieved between the sharing economy and existing suppliers, to which 93% answered positively.

Government must lay the institutional foundations to support the stable growth of the sharing economy. In the sharing economy most of the suppliers are non-professional and engage in transactions temporarily or irregularly. However, the existing regulatory system regards suppliers as professional business operators but if the same regulations were applied to sharing economy non-professional suppliers, then it will be hard for them to meet these regulatory standards and eventually they will have to leave the market. On the other hand if the government doesn’t apply the same regulations then it will lead to conflict with the existing businesses.

Hence in this case what the government can do is impose regulation linked to the volume of transactions. A transaction limit should be set and those who exceed this limit should be considered as “professional” and subject to “traditional supplier” regulation. Transaction volume-based regulation will guarantee the respective suppliers an autonomous right of choice while demanding them to pay the price for the benefit of eased regulation i.e. reduced transaction volume.   

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