Balancing Innovation And Regulation In The Sharing Economy

The sharing economy is booming, as companies like Airbnb, Getaround, Lyft, and others are disrupting incumbent industries like hospitality or urban transportation. But by using technology to create new services, these companies don’t fit neatly into the regulatory framework in those industries. I spoke with New York University Stern School of Business professor Arun Sundararajan about this very topic. His take? Regulators will have to evolve the way that they approach these new businesses.

For Sundararajan, the sharing economy provides a way for real-world assets to be disaggregated in space and time and repackaged into standalone services. That’s disrupted the scope of what can be disrupted by digital tools, and allows people to time-share goods that would otherwise go unused at certain times. Examples: Sharing an apartment on Airbnb or renting out a car through Getaround.

But the problem arises when industries that are usually highly regulated — like the hospitality industry or the car rental market — is suddenly forced to compete with services that don’t go through the same rigorous levels of inspection or qualifications to ensure public safety. Your Lyft driver is most likely not licensed to drive according to the California Public Utility Commission’s regulations, and the car you rent from Getaround probably doesn’t adhere to the same scheduled maintenance and inspections that are common for cars rented from incumbent agencies like Enterprise or Avis.

The solution, according to Sundararajan, could be to allow the companies that offer these marketplaces to self-regulate through a mix of vetting goods providers on their own and using identity and reputation management to ensure that bad actors don’t stay in the system.

By doing so, regulators could distance themselves from some of the more arcane public safety elements, which are today already being solved by sharing economy companies themselves. Instead, they could work more on being the place of last recourse for consumer complaints if things go wrong. In other words, they should spend less time on the screening aspect and more time solving problems when there’s nowhere else to turn.

The good news is that many companies in the sharing economy are already doing a good job of self-screening. The ride-sharing companies, for instance, do background, license, and criminal checks on all drivers, and have systems in place to get rid of those who are rated poorly by riders. And the star rating system for other marketplaces — like Airbnb — tend to ensure that poorly rated properties don’t get rented.

But don’t take my word for it. Check out the video above for the full interview and tweet at Arun Sundararajan¬†with any questions.