The Shared Economy and the New Paradigm of Property Rights

Thursday, March 30th, 2017 at 3:54 pm by Antonia Hyman

A new digital economy has given rise to platform business premised on the notion of sharing, dubbed the “sharing economy.” This phenomenon is driven by technology that allows entities, either individuals or organizations, to share the use of a physical asset or provide a service. Characteristics of the shared economy style businesses include a technology-enabled platform, a preference for access over ownership, peer-to-peer sharing of personal assets, ease of access, increased social interaction, collaborative consumption, and openly shared user feedback. Although each feature does not typify every business, these characteristics are overwhelmingly present in the dominant shared-economy companies – Uber and AirBnb. Both companies allows individuals to share personal assets with consumers who incrementally use the asset, resulting in increased utilization rates.

The familiarity and usage of the sharing economy has exploded over the last decade with 19% of the total U.S. adult population engaging in a sharing economy transaction and 44% of U.S. consumers familiar with the sharing economy. This exponential growth has not come without caution, however. 57% percent of consumers who have tried it agree, “I am intrigued by companies in the sharing economy, but have some concerns about them.” Moreover, as the shared economy has grown in size and scale globally, regulators have understandably increased their attention to the sector. A 2015 report from the National League of Cities reviewed regulatory policies from safety to innovation, and a 2016 report from the European Parliament weighed the cost and benefits of non-participation in the sharing economy. In general, these studies focus on two discrete questions. First, whether the sharing economy creates additional wage-earning opportunities or whether it effectively displaces traditionally secure jobs by replacing them with part-time, low-paid work, and second, whether limitations should be placed on how property owners effectively “share” their property.  Regardless of what sides of the debates you fall on, these concerns merit attention due to their role in shaping the American economy and consumer experience. The remainder of this post will focus on the second concern – the new paradigm of property rights in the shared economy.

The most publicized attack on property rights pertains to AirBnB, as New York lawmakers voted to crack down on home sharing. On October 21, 2016, New York Governor Andrew Cuomo signed a bill making it illegal to advertise entire unoccupied apartments for less than 30 days on AirBnB, effectively targeting the company’s short-term rental model. However, prohibitions like these are becoming increasingly common. In Honolulu, officials have imposed fines on homeowners for allowing paid overnight guests and in Nashville, regulators have limited the number of properties that may be “non-owner-occupied short-term rentals” to 3 percent. Regulators understandably want to protect low-income tenants who may suffer at the hands of over-zealous landlords that push tenants out in order to profit from more lucrative short-term rentals. However, attacks on property rights are not limited to the sharing of homes. Consider for example, the public war waged between Uber and New York City over regulations that would require the company to give the city access to data on when and where its drivers drop off passengers. Albeit framed differently, this is just another attempt at regulating what individuals do with their private vehicles.

But it would be naïve to believe that long-standing industries such as the hotel or taxi lobbies do not seek to influence policy matters. These traditional businesses represent the orthodox and “old way of doing things,” prior to innovative companies like AirBnb and Uber disrupting their business. While protecting the interests of traditional industries may protect old jobs, doing so to the detriment of disruptive companies only discourages economic growth and punishes responsible owners. In short, regulators must find a way to protect the most vulnerable portions of our society without hindering businesses that might in fact benefit that same population. That is not achieved by blanket prohibitions on the sharing of property.

The rise of the sharing economy has blurred the traditional categories of private and public that have historically divided assets for personal consumption and assets for commercial exchange. The dissolution of those boundaries merits the revision of legal rules and doctrines suitable for the regulation of an economy in which sharing is the norm rather than an infrequent deviation. Historically, the distinction between personal consumption property and commercial property has been essential to the molding of legal rules and doctrines. On the other hand, if objects historically purchased for consumption, like homes or cars, are now being shared, do the same rationales (e.g. privacy, exclusivity) for protecting these objects and spaces still make sense? Such protections may no longer be merited given the premium put on access versus ownership. As previously discussed, the new sharing economy is typified by access as opposed to ownership, which indicates its value.

Given the shift in paradox, regulators should shy away from restrictive regulatory maneuvers that ban the sharing of property or subsume all transactions under the commercial activity header. Rather, policy makers should reconfigure these two stark categories of personal and private as a hybrid of the two. In her work, Shelly Kreiczer-Levy coins this hybrid the “intermediate space.” This new understanding of property highlights the notion that the sharing of personal assets gives rise to “new types of transactions and interactions and a unique set of personal and social benefits and costs.” Re-conceptualizing the established property doctrine in this manner lends to a more productive and accurate account of consumption property transactions.   Of course, policymakers should still consider the difficult questions. Namely, what happens to the private right to discriminate? And what justifications exist for granting special legal protections to personal consumption property when those objects are shared? However, the failure to explicitly conceptualize the new form of interaction and exchanges under the sharing economy will lead to suboptimal outcomes. As evidenced by the restrictions in New York, we have already seen local and state governments adopt a flurry of provisions to tackle the shared economy. Regulations certainly have a place, but they must adhere to a new paradigm of property rights.