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How to Regulate the Sharing Economy

MIT's Andrew McAfee spoke at Techonomy 2012 about the impact of robotics on the job market.

MIT’s Andrew McAfee spoke at Techonomy 2012 about the impact of robotics on the job market.

Techonomists Arun Sundararajan and Andrew McAfee were among seven who contributed to a debate in The New York Times last week about how to handle the disruptive economic effects of the emerging sharing economy.

The Times asked the pundits to consider whether the apps and online services that are powering the sharing economy, such as Airbnb, Uber, and TaskRabbit, are “cutting edge conveniences that should be encouraged, or money-making businesses that need more regulation?”

Sundararajan, a professor at NYU’s Stern School of Business, says the services are blurring the “boundaries between personal activities and the commercial provision of service.” He favors regulation to weed out bad actors. “Guidelines developed explicitly to formalize the informal providers will ensure that a handful of law-breakers don’t hold back the millions who are creating legitimate new economic value,” he writes.

But McAfee, cofounder of the MIT Initiative on the Digital Economy, argues against new regulations. “In many if not most cases, existing rules handle new technologies quite well,” he argues. Plus, he points out, while new regulations are often developed in the name of consumer protection, consumers don’t seem to need protection from what sharing economy services are offering: great deals.

Two Federal Trade Commission directors say the agency does “not promote any particular outcome or way of doing business” but urges that, “absent some justification in the public interest, consumers be allowed to pick which business wins the competitive battle in a fair contest.”

Offering perspective on how the sharing economy is benefiting the poor, Fernando Perini at the International Development Research Center in Canada writes, “Regulation will be a major challenge, particularly in the developing world where economic informality is already the norm. As more platforms emerge, it is not yet clear whether traditional regulation will stifle progress on normalizing the informal economy. We need to know more about who will benefit and who will lose.”

And Larry Downes of the Georgetown Center for Business and Public Policy argues that the same emerging technologies and networks that enable the sharing economy would be best for regulating it. Public ratings offered by users and providers is an “alternate form of governance that is more efficient and less corruptible” than regulatory bodies that were long ago formed to protect consumers, but now serve mainly the industries they are supposed to be watching, he says.

“Until the regulators and the regulated are willing to accept the need for a complete overhaul of existing rules, we can expect more technology-driven civil disobedience,” Downes predicts. Sounds like industry regulators are the next in line for disruptive innovation.

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