Trust, Declining Crime and the Rise of the “Sharing Economy”

A good sociology Ph.D. thesis will be written about the rise of the sharing economy (where people share with strangers in return for payment).    On both the supply and demand side of the transaction, the reduction in urban crime shifts perceptions about safety.  Are you willing to allow a stranger into your car?  Are you willing to enter a stranger’s car in return for a lift?  Of course, the macro economy is driving this new market but I think that the reduction in crime is another big piece of the story that hasn’t gotten enough attention.

A Quote from the LA Times;

The “catalyst” for growth, Sundararajan says, has been the lousy economy, which has provided an incentive for people to exploit their most valuable assets, their homes and cars, for extra income. That poses the question of whether the expansion of sharing networks will slow as the economy recovers and owners no longer feel the need to give up their privacy for cash.

In the past, it wasn’t unusual for families facing hardship to take in boarders to help make ends meet, but the practice fell out of favor during more prosperous times. Will that happen again? “We won’t know until economic conditions change,” says Paul, though he claims that many Sidecar drivers appreciate not only the money but also the experience of meeting new people.

And of course these services can fill needs unmet by traditional providers of short-term goods like cars and rooms by expanding the available inventory, sometimes at lower prices.

The downside of these peer-to-peer arrangements is that there’s no guarantee that either the driver or the passenger will be sane, that the car will be street-worthy, that the accommodations will be livable. The sharing firms typically say that their services are “self-policed.” By this they mean that users are encouraged to give public ratings to their counterparties at the conclusion of each ride or stay, which weeds out bad actors.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

15 thoughts on “Trust, Declining Crime and the Rise of the “Sharing Economy””

  1. ¨The downside of these peer-to-peer arrangements is that there’s no guarantee that either the driver or the passenger will be sane …¨
    The regulated taxi-driver has no guarantee at all now about her passengers - a sharing network provides more information. I´m not sure how strong a guarantee the taxi passenger has about her driver, when licences are often treated as tradeable property.

    I´d prefer to reserve the valuable word ¨sharing¨ for non-commercial transactions, gifts or gift exchange. My niece and her husband (they are Quakers) are cycling from England to Iran; they often sleep on strangers´ couches, found through a non-commercial gift exchange network with ratings. What you are describing is informal, but at arm´s length.

    1. Ditto. If you charge someone for something, that is not sharing, it is just selling. We used to call this stuff the gray market, I thought.

  2. I’m probably older than Matthew (I’m older than dirt), but I remember when strangers would often let strangers in their car for no monetary consideration whatsoever. It was called “hitchhiking.” A quaint old custom, only conceivable in a culture dominated by neither fear nor pecuniary worship.

  3. Imagine an economy in which it is convenient and safe to share (for money or not) the use of capital equipment like spare bedrooms, cars, lawnmowers, snowblowers, etc. Would such an economy need to produce as many of those things as our current economy, in which such physical capital sits idle most of the time? Would it mean fewer “good-paying manufacturing jobs”? Would it mean a smaller GDP as economists measure GDP?

    Or would it be a pleasant and efficient form of (gasp) communism?


    1. Well, there’s Zipcar and Hubway. I don’t know how they are doing, but they are certainly steps in that direction. As is VRBO.

    2. If Marx is to be believed, such arrangements would play no part in the Communist utopia since the era of “super abundance” that ushers Communism means that people would not be forced to undertake such sharing arrangements out of economic necessity. Comes the revolution we will all stay at the Ritz, drink Château Lafite Rothschild and have sex with Mila Kunis.

        1. Old Soviet-Era Russian joke. A political commissar is exhorting a group of workers in England to revolutionary fervor by extolling the great changes the revolution will bring. “Comrades,” he says “after the revolution we will all drive Jaguar automobiles.” Everyone cheers. “We will all holiday on the French Riviera”. Everyone cheers again. Then the commissar told them “come the revolution we will all eat strawberries and cream!” Everyone cheered loudly except for one man who raised his hand and said “but commissar, I don’t like strawberries and cream”. The commissar shook his head and replied: “Comrade, you don’t understand. Comes the revolution, we will all eat strawberries and cream”.

    3. A question about the sharing economy: The shared lawnmowers will eventually reach the end of their useful life and will need to be replaced. Who will buy the first replacement lawnmower?

        1. I think not. I would prefer to wait until my neighbor forks over the capital for the goat and arranges for his room and board.

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