Risks and Regulations of the Sharing Economy

The concept of a sharing economy, which includes businesses such as Uber and Airbnb, enables people to utilize an item or service without acquiring actual ownership. While its increasing popularity brings benefits to users, it nevertheless poses a number of risks. In his recent study, “Share and Share Dislike: The Rise of Uber and AirBNB and How New York City Should Play Nice”, Alexandra Jonas addresses how to regulate the sharing economy, providing recent examples of efforts made in the United States.

A common point among critics highlights that the sharing economy business model has unfair advantages over other highly regulated businesses. When Uber uses dynamic pricing to charge its customers, fares surge and decline at different times. Such volatility in pricing, according to New York’s Attorney General Eric T. Schneiderman, violates the General Business Law, which protects against such price hikes. In New York City, a number of Airbnb hosts currently rent out places in violation of New York’s Multiple Dwelling Law, which restricts renting out places for periods of less than 30 days. Airbnb has also avoided many hotel occupancy taxes despite having updated tax information on its website. Since it is still unclear whether or not Airbnb is a “hotel” for tax purposes, it is difficult for cities to collect taxes from people who rent out their places through Airbnb.

As a growing number of lawsuits are filed against Uber, several states have inaugurated reforms hoping to mitigate such problems. California established a new category of motor vehicle carriers known as Transportation Network Companies that do not recognize Uber as a taxi service and require Uber drivers “to have certain insurance, perform background checks, and maintain drug and alcohol policies to ensure drivers are law abiding.” Washington, D.C.’s “Vehicle for Hire Innovation Amendment Act,” which the author believes to be more effective in regulating sharing economy transportation, creates a new class for services like Uber, enforcing background checks and inspections, and specifically forbidding the manipulating fare charges. While these policies work to ensure consumer protection, they still exempts companies like Uber from the numerous other regulations taxicab companies are subject to.

Airbnb is subject to few regulations aside from one ordinance proposed by San Francisco that requires Airbnb hosts to register with the city and pay the hotel tax. Aimed at preventing illegal conduct, however, the author argues its methods are inherently flawed as it lacks strong enforcement and monitoring mechanisms.

The challenges of regulating the sharing economy, which relies on trust between people, lies in whether this new business model can fit into existing laws. The author argues that in order to regulate the sharing economy, instead of creating a new law for each sharing economy model such as ride sharing, apartment sharing, or other similar businesses when they come into existence (e.g. meal sharing), the United States should create comprehensive laws to encompass sharing practices as a whole. Otherwise, singular laws will be continuously amended whenever a new sharing economy business emerges.

In addition, laws should reflect the principles that the sharing economy is based on and try to facilitate and safeguard the direct exchange of goods or services between individuals. The scope of regulation should also include third parties, such as pedestrians who do not use Uber, or the neighbors of Airbnb hosts to make sure that they are protected from risk. Without setting rules that create trust and collaboration between users, guarantee the safety of third parties, and respect incumbents that operate on different business models, avoiding the risks of the sharing economy will be an ongoing challenge.

Article source: Jonas, Alexandra. “Share and Share Dislike: The Rise of Uber and AirBNB and How New York City Should Play Nice.” Journal of Law and Policy Vol. 24 Iss. 1 (2016).

Featured photo: cc/(Ellagrin, photo ID: 500365609, from iStock by Getty Images)