AIRBNB AND OTHER vacation rental sites as well as Uber and other ride companies have boomed in recent years, but they may just be the tip of the iceberg in the growing “sharing economy.”  The dynamic is explored in a new research paper, co-authored by Richard Zeckhauser, Frank Plumpton Ramsey Professor of Political Economy at Harvard Kennedy School, and John J. Horton of the Leonard N. Stern School of Business at New York University.

Peer-to-peer (P2P) rental markets are flourishing for many reasons, Zeckhauser and Horton argue, not the least of which are recent technological innovations which have made it easier to reach wide audiences while simultaneously lowering transaction costs.  But the authors claim that is just a part of the story.

“P2P rental markets rely heavily on the hard-won industrial experience in the design and management online marketplaces,” they write. “In particular, recommender systems and reputation systems all emerged during the early days of electronic commerce and are now relied on extensively in P2P rental markets. This knowledge allows P2P rental platforms to overcome—or at least ameliorate—market problems such as facilitating trust, lowering search costs and reducing moral hazard and adverse selection.”

Zeckhauser and Horton conclude that as P2P markets continue to grow, manufacturers may begin designing goods specifically for those markets.  “For example, locks on cars and houses that allow remote entry will be more appealing. The emerging Internet-of-Things will make it easier to identify goods that are not being used at a moment in time and perhaps facilitate trade automatically.

“Similarly, technologies that make it easier to monitor usage (GPS, embedded sensors, streaming video of how they are being used and so on) should make contracting easier and reduce some of the informational asymmetries that contribute to transaction costs,” they write. 

Richard Zeckhauser is the Frank P. Ramsey Professor of Political Economy at Harvard Kennedy School. His contributions to decision theory and behavioral economics include the concepts of quality-adjusted life years (QALYs), status quo bias, betrayal aversion, and ignorance (states of the world unknown) as a complement to the categories of risk and uncertainty.

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