We�ve come a long way since 1969, when a student at UCLA typed �LO� to send the very first Internet message.[i]  The internet is now ubiquitous. It has radically changed how humans produce, share and consume information. By granting the ability to transcend geographical limitations near-instantaneously, the �net� dramatically improved the efficiency with which we share ideas and conduct transactions. Such online activity quickly coalesced into notions of horizontal communities that prioritized decentralized �peer-to-peer� institutions [ii]  over the centralized capitalist apparatus characteristic of the 20th century. It was this reimagining that midwifed what is being called the �sharing-economy�, which has disrupted traditional markets and ignited a wide range of debates on �labour rights�, �income inequality�, �resource redistribution� and the very idea of �ownership�. In this piece, we look at sharing economy�s impact on costs of transaction and gains in efficiency, and the concomitant challenges in regulating this phenomenon.

The sharing economy uses Internet-enabled connectivity to let individuals quickly share resources for collaborative consumption. By stressing on access over ownership[iii] , it eliminates the need for middlemen by allowing those in need to quickly find owners with such resources who are willing to share (often for a fee). An immediate result is reduction in both transaction costs and the amount of time these resources lie idle.

In the wake of the anti-excess narrative that followed the Financial Crisis of 2007-08, the availability of cheap physical assets dovetailed perfectly with the rise of community-driven enterprises[iv] . The presence of a mature consumer base entrenched within digital networks provided fertile ground for the sharing system to flourish, augmenting family incomes in an economically uncertain environment. As direct interactions between buyers and sellers increased, micro-level preference matching became possible at a scale previously unseen. Platforms began to integrate customer feedback directly into their pairing algorithms, creating steady pressure on service suppliers to ensure consistent quality and timely service.

Part of the sharing economy�s success has been attributed to the Internet�s ability to enable resource sharing at zero marginal cost � the phenomenon that previously revolutionized the digital music industry [v]. According to Jeremy Rifkin [vi] , the Internet made it far easier for owners of regular assets (cars, apartments etc.) to put their possessions in the market in real-time at near zero additional cost. Most existing fixed-costs for such assets (mortgages, maintenance costs, utility charges etc.) have already been absorbed, giving these products a significant competitive edge over the traditional service sector�s centralized inventories and high operating costs. Enterprises such as Uber and AirBnB couple these advantages with mobile devices to create always-accessible digital interfaces that shape real-world economic interactions and quickly disrupt the sectors within which they operate. A myriad number of services available through app-based interfaces now exist, with Uber-clones providing similar ease in services such as laundry, cleaning and food delivery.

Also critical to the adoption and sustainability of such a system is interpersonal trust, a factor that is often built into the sharing platform[vii] . Apart from basic safeguards for identity confirmation, the sharing economy relies heavily on feedback from participants on both sides of the exchange in the form of reviews and ratings (successfully implemented for the first time on the e-commerce website eBay). This �crowd sourcing� of quality control directly inform the platform�s matching algorithm, which factors in poor feedback when matching members. The panopticon of constant and publicly accessible assessment creates strong incentives for members to operate fairly and transparently. The digital database acts as a proxy for trust [viii] , creating the promise of high minimum levels of safety and quality for participants. This goes some way in explaining why users are willing to stay with (AirBnB), share rides (Uber) and other physical possessions with complete strangers.

However, the system is not foolproof. In the absence of regulation, platforms have been known to skirt their own minimum standards, resulting in occasional but deeply worrying harms to participants that trusted the system. The most successful of these platforms (Uber and AirBnB) have also been the ones with the most worrying lapses. The banning of Uber in New Delhi following the rape of a passenger by a driver, who had a noted history of violent behavior, puts into sharp relief the dangers that shoddy implementation can allow. Reports of other worrying instances (including unfair and anti-competitive business practices) have surfaced across many of the markets within which Uber operates. With huge amounts of capital backing Uber (it was valued at $40 billion in 2014), the capacity of local incumbents to offer any real competition is often rendered redundant. While the banning was criticized by some as bureaucratic overreach backed by pressure from incumbents [ix], ensuring the safety of participants and welfare of city residents is a subject with little room for compromise.

How to approach the disruptive impact of such services is less clear. There exist fears that initiatives such as AirBnB are destabilizing housing markets, and worsening affordability of habitat in cities like New York [x] . It is thus imperative that these new systems and their impact be understood critically. State regulation of such borderless technologies is strongly argued both for and against in contemporary debates. The growth of these technologies certainly caught regulatory institutions off guard, but such disruption is characteristically Schumpeterian � in which case the literature is divided on the desirability of intervention. As policy makers struggle to comprehend the very nature and classification of these enterprises and their services, pertinent issues of taxation, unfair competitive practices, liability, and labour regulations come to the fore.

Nonetheless, the sharing economy holds real promise for developing countries, which suffer from poor enforcement of property rights and rigid regulatory regimes [xi] . In such economies, collaborative consumption offers an attractive alternative for overcoming information asymmetry and enabling decentralized peer-to-peer provisioning of goods and services. Technology-based matching of consumers and providers requires relatively little capital investment, and the crowd-sourced model of governance can go some way in self-regulation within such sectors. The potential for boosting household incomes and spurring small scale entrepreneurship is promising [xii] . As models of consumption undergo this transformation, its impact is being felt globally. Accommodation shortages during the 2014 Football World Cup in Brazil were quickly addressed by such platforms, with over 1 lakh people staying in shared accommodation. According to a Nielsen Global survey in 2013, 68% of online consumers were willing to share and rent out personal possessions and services in these markets. Of these, respondents from the Asia-Pacific were the most willing with 78% willing to share, followed by Latin America and the Middle East at 70% and 68% respectively [xiii] . This augurs well for India given its telecom boom, and the State�s ambitious plans to ensure universal internet connectivity. With an institutional structure to ensure digital literacy, access and requisite safeguards, these technologies could benefit those previously underserved by traditional markets by providing them entry to the more inclusive online sharing community.

————————–Sirus Joseph Libeiro and Parnil Urdhwareshe


[i] The message was meant to be �LOGIN�, but the system crashed.

[ii] http://ouishare.net/en/about/collaborative_economy

[iii] http://articles.latimes.com/2014/apr/06/opinion/la-oe-rifkin-airbnb-20140406

[iv] http://www.economist.com/news/technology-quarterly/21572914-collaborative-consumption-technology-makes-it-easier-people-rent-items

[v] http://www.latimes.com/opinion/op-ed/la-oe-rifkin-airbnb-20140406-story.html#axzz2yCYKxvIB

[vi] Rifkin, J. �The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons and the Eclipse of Capitalism�.

[vii] http://www.wired.com/2014/04/trust-in-the-share-economy/

[viii] http://www.inc.com/christine-lagorio/sharing-economy-trust-pipe-dream.html

[ix] http://www.washingtonpost.com/blogs/innovations/wp/2013/05/24/the-sharing-economy-how-do-you-stop-something-you-cant-keep-up-with/

[x] http://www.theverge.com/2015/1/21/7865959/airbnb-under-fire-new-york-city-city-council

[xi] http://www.cato.org/blog/how-sharing-economy-can-help-developing-nations

[xii] http://www.forbes.com/sites/modeledbehavior/2014/08/04/the-sharing-economy-and-developing-countries/

[xiii] http://www.nielsen.com/lb/en/press-room/2014/global-consumers-embrace-the-share-economy.html