Regulators Adapt to the Sharing Economy

By Matt Kelly

The so-called “sharing economy” has revolutionized the way people travel, lodge, eat, and work through companies such as Uber, Lyfft, airbnb, and OpenTable. Buyers and sellers are increasingly transacting on online platforms that use a mix of demand pricing, reputation mechanisms, and computer algorithms to match users. This innovation represents a dramatic challenge to regulators, whose enforcement framework is designed for traditional brick-and-mortar businesses. Some jurisdictions have been accommodating, while others have cracked down.

The sharing economy is already large, and growing. A 2017 report by the Brookings Institution estimates that the worldwide sector will grow from $14 billion in 2014 to as much as $335 billion in 2025. Economists from the University of Chicago estimated that Uber generated $6.8 billion in consumer surplus nationwide in 2015. A report by PriceWaterhouseCooper estimates that 7 percent of the US population are providers in the sharing economy.

Some sharing-economy innovations address market failures in the industries they disrupt, weakening justifications for government regulations. Such services are typically more affordable, and the miniscule cost to users of switching service providers makes monopolization unlikely. Rating systems built into sharing-economy apps reduce information asymmetries and improve user accountability. Studies have found ridesharing apps like Uber and Lyft serve somewhat different customer bases and tap somewhat different labor markets than taxi services, suggesting traditional regulations may be unsuitable. Sixty-four percent of consumers surveyed by PriceWaterhouseCooper said that “in the sharing economy, peer regulation is more important than government regulation.”

Since most sharing-economy companies have disrupted markets that are regulated by state and local governments, the deregulation has differed from city to city, state to state.

Vacation rental services like Airbnb have come into conflict with local zoning codes. St. Petersburg’s code outlaws Airbnb entirely, but Ft. Lauderdale and Panama City Beach have passed ordinances to accommodate services like it. Other cities like Orlando have targeted individual hosts. A judge in Miami recently blocked the City of Miami’s code compliance department from enforcing a short-term rental ban in residential communities, a move that protects AirBnb hosts throughout the city. AirBnb claims a 2011 state law prevents local governments from creating new zoning and growth management regulations that inhibit short-term rentals.

Opponents of ridesharing have cited federal labor laws and local licensing regulations. An ongoing class-action lawsuit in San Francisco would reclassify Uber’s fleet of vehicle-owning independent contractors as employees. A similar suit in Florida was thrown out by a judge. Efforts to regulate ridesharing more aggressively than taxis have led Uber to cease operation in some locales (for instance, in Austin, TX, Broward County, FL, and all of Alaska). Cities have sometimes reneged or created less restrictive regulations after residents protested, as happened in Broward County. In 2014, taxi drivers in Atlanta and Chicago sued Uber, complaining that its drivers should have to obtain certificates of public convenience and necessity, which confer government approval of additional cars in their fleets. Taxi companies have fought fiercely to retain regulations that insulate them from competition, but at least one city in Florida has responded by deregulating taxis and ridesharing altogether.

Ridesharing companies have complained that a patchwork of local regulations complicate business. A bill in the Florida legislature would end that by regulating vehicles-for-hire at the state level, requiring only background check and insurance standards. This uniformity would be the most significant reform caused by the sharing economy so far.

Regulations will have to change to accommodate the innovations of 21st century technology, and approaches to reform have differed among jurisdictions. The sharing economy has spurred a wave of deregulation, but only time will tell how far that tide will rise.

About DeVoe Moore Center

The DeVoe L. Moore Center is conducts economic research and policy analysis focused on state and local policy issues and is located in the College of Social Sciences and Public Policy at Florida State University in Tallahassee. As an educational institution the DMC provides professional research experience to undergraduate and master’s students through an extensive program of internships and independent study, preparing them for a future in public policy, economic development, public sector accountability and entrepreneurship.
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