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CXO

The sharing economy: Will self-regulation by startups suffice to protect consumers?

Regulation and the "sharing economy" was the topic of a recent panel discussion in the U.S. House of Representatives. Alex Howard summarizes the highlights.

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(L to R) David Hantman, John Breyault, Alex Howard, Adam Thierer, Arun Sundararajan at the regulation and sharing economy panel convened by the Internet Caucus.

"Congress should care, but forbear." That was the conclusion of a panel of an academic, a researcher, a consumer advocate, and a tech executive convened by the Internet Caucus in the U.S. House of Representatives in DC last week to consider regulation and the "sharing economy." I was proud to moderate the discussion. It's a timely topic: startups that develop platforms that match the supply of goods and services with demand from mobile consumers are attaining multi-billion dollar valuations and shaking up markets for lodging, transportation, and more.

Three of the participants, Arun Sundararajan, a professor at the NYU Stern School of Business, Adam Thierer, a senior research fellow at the Mercatus Center at George Mason University, and David Hantman, the head of global public policy for Airbnb, all made a case for why legislators and regulators need to take great care in enacting laws and policies that govern companies and startups, lest entrepreneurs be stifled and genuine benefits to consumers be snuffed.

That came as no great surprise: Sundararajan has previously written that government shouldn't regulate the sharing economy, in 2012, and, more recently, about trusting the sharing economy to regulate itself. Thierer just co-authored a paper on the sharing economy and consumer protection regulation (PDF) in which he and his co-authors argue that, "coupled with the Internet and various new informational resources, the rapid growth of the sharing economy alleviates the need for much traditional top-down regulation."

These recent innovations are likely doing a much better job of serving consumer needs by offering new innovations, more choices, more service differentiation, better prices, and higher-quality services. In particular, the sharing economy and the various feedback mechanism it relies upon helps solve the tradition economic problem of "asymmetrical information," which is often cited as a rationale for regulation. We conclude, therefore, that "the key contribution of the sharing economy is that it has overcome market imperfections without recourse to traditional forms of regulation. Continued application of these outmoded regulatory regimes is likely to harm consumers."

John Breyault, vice president of Public Policy, Telecommunications and Fraud at the National Consumers League, made arguments for consumer protection within the services using existing statutes and posited that the technological innovation that various startups are deploying benefit consumers. Hantman, for his part, recounted the steps that Airbnb now takes to protect both hosts and users of its services in the event of disputes and issues.

One narrative of the sharing economy has often been that these platforms enable ordinary people to earn income renting a room or driving for a car service in their spare time, and others to rent part of a good or service, as opposed to having to own it. A countervailing narrative is that the business tycoons of Airbnb, one of the most well-known examples of the sharing economy, are professional operators, not amateurs, and that other markets for goods and services will have similar dynamics. Hantman argued that their data shows the majority of the 700,000 or so Airbnb listings in New York City alone are offered by individuals, not businesses.

As anyone who has used a mobile device to request on-demand transportation to those who have found flexible accommodation knows, these kinds of services can offer improved services at lower prices. (I've used Uber around the US, and we were Airbnb hosts for a few months.) The question of where liability rests, however, is an important legal matter that came up during the discussion. The consensus answer was that "it depends," but one emerging approach is to make sure operators of vehicles and hosts carry sufficient insurance.

Given that the forum was held in Washington, DC, it was no surprise to hear the question of taxes and the sharing economy also came up. (Once something exists, it seems people in DC will inevitably wonder if it's taxable.)

In this land of lawyers and lobbyists, the issue of legal liability is never far away. In the sharing economy, the question is often unresolved. For instance, if the operator of a vehicle used in a sharing economy startup kills someone while driving, who is liable? I asked the panel this question, along with the related issue of whether the people on these platforms provide means of "public accommodation," which in turn would mean that some vehicles or residences would need to be accessible. No clear answers there, either, but again, there are existing statutes, like the Americans with Disabilities Act, on the books to apply if violations are found.

A clear tension point is how and where data showing compliance with existing laws and regulations can and should be disclosed. The companies involved aren't sitting idly by on the sidelines, either: as WAMU reported in November 2014, Uber is actively lobbying the municipal government of the District of Columbia to seek changes to a wheelchair-accessible taxi bill, the For-Hire Vehicle Accessibility Amendment Act (PDF). Uber holds that disclosing the data about the numbers of wheelchair-accessible trips that are requested and provided to passengers would pose an "undue regulatory burden" upon the startup.

There's also the issue of discrimination in the sharing economy. On the one hand, "Ubering while black," as Jenna Wortham wrote in Medium and Latoya Peterson described at Racalicious, can enable people of color to order transport when cabs do not stop. While it may cost more to use the premium towncars, an UberX is currently cheaper than a taxi and does not carry any emotional overhead.

On the other hand, as Wortham noted, creating platforms and leaving people using them to self-regulate commercial activity there without oversight could be problematic in the long term.

Michael Luca, an assistant professor of business administration at Harvard Business School, told me that the one clear downside to marketplaces that rely on reputation and build social features like personal information into business transactions is that they can have unintended side effects. "The social nature of the sharing economy is more vulnerable than a traditional economy," he said.

In January, Luca co-published a paper on digital discrimination that surveyed thousands of listings on Airbnb. The study compared black and non-black hosts who had similar apartments, photos, and ratings, and found that the non-black hosts tended to earn 12 percent more than their black peers, suggesting that those black Airbnb hosts were susceptible to some form of social selection and internal biases.

One of the final questions that I brought up regards privacy and trust in the sharing economy, a matter I explored at Wired in November 2014. Information transactions around services, objects, and resources have existed in humanity for thousands of years, from people sharing shelter and food to neighbors borrowing tools to housemates borrowing cars to colleagues and classmates sharing networks, servers, and printers.

Today, these interactions and transactions are rapidly becoming digitized: if an entrepreneur can create a marketplace for a given commodity or service, someone will try to do so. That means there's going to be data generated where there was none before, which will give the owner of the platform strategic insight and business intelligence about the dynamics of the market, and its users.

As sharing economy startups become larger parts of local economies, embedded into how people work, travel, recreate, and shop, the digital exhaust from those actions creates associations and patterns that may be mined for insight, efficiencies, or more nefarious purposes. Location data is powerful, in context. As The Washington Post reported, when access to Uber's internal analytics was granted to a job applicant, he was then able to use it to look up the relative of a politician in DC. Uber now says that it's monitoring and auditing user data access much more robustly, as is Lyft, the ridesharing startup's chief competitor.

These kinds of issues around user data privacy will lead more people to worry about whether they can trust companies like Uber and other players in the sharing economy.

One approach to that issue could be what Zeynep Tufekci, an assistant professor at the School of Information at the University of North Carolina, and Brayden King, an associate professor of management and organizations at the Kellogg School of Management at Northwestern University, suggested in an editorial in The New York Times: information fiduciaries, or "independent, external bodies that oversee how data is used, backed by laws that ensure that individuals can see, correct and opt out of data collection."

Given a 113th Congress that did not pass surveillance reform, a national data breach law, digital due process, or Freedom of Information of Act reform, it's unlikely that such a body will be created soon, but in the vacuum left behind, the Federal Trade Commission has placed many tech companies under privacy audits. If platform operators in the sharing economy aren't responsible about designing their platforms and applications to deliver security and "privacy by design," they may face the same attention.

Down the road, if discrimination, disability, civil rights, and consumer protections aren't also baked into these services from the start, more members of Congress and parliaments around the world might also start to care about sharing — and stop forbearing from legislative action.

You can listen to the archived audio of our robust discussion on the audio player at NetCaucus.org or download it directly as an MP3 to listen to at your leisure.

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About

Alex Howard writes about how shifts in technology are changing government and society. A former fellow at Harvard and Columbia, he is the founder of "E Pluribus Unum," a blog focused on open government and technology.

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