By Maia Hass

As the world becomes more technologically advanced, the online peer-to-peer sharing economy grows with it. In the last decade, digital platforms such as Airbnb, VRBO, and HomeAway have introduced more personalized lodging options. However, the unique features associated with these platforms have raised concerns among consumers and legislators about the lack of security that comes with staying inside a stranger’s home. In response, the Miami Dade Board of Commissioners recently passed Ordinance No. 17-78, which requires hosts to acquire certificates of use, limit how many properties they can rent out, and enforce a number of “vacation rental standards” on guests, as well as pay local tourist and state taxes. However, studies show that consumers’ concerns can be alleviated when lodging platforms engage in self-regulation.

Staying overnight in a stranger’s home can be a frightening experience for those who are new to using platforms like Airbnb. Although short-term rentals are independently run, mechanisms for self-regulation are put in place by companies that help ensure consumer safety. With self-regulation, the regulation of goods and services provided to the public is monitored by the private sector rather than the government. One major component of self-regulation that many peer-to-peer platforms incorporate is the use of ratings as a way to measure the reputation of homeowners and customers alike.

In their paper, “Self-Regulation and Innovation in the Peer-to-Peer Sharing Economy,” New York University professors Molly Cohen and Arun Sundararajan emphasize the importance of incorporating reputation mechanisms into business models as a way to “(1) provide information that allows buyers to distinguish between trustworthy and non-trustworthy sellers (2) encourage sellers to be trustworthy, and (3) discourage participation from those who aren’t.” They argue that reviews, ratings, background checks, and other forms of reputation mechanisms solve the market failures inherent in these platforms that government legislation aims to correct through increased regulation. Reputation mechanisms such as reviews encourage trust and facilitate accountability among members of the community.

A study by Dr. Ulrike Gretzel and Dr. Kyung-Hyan Yoo found that roughly 97 percent of travelers from the sample read reviews and ratings while planning their trips, with 61 percent finding reviews more likely to be reliable and up-to-date. When making any decision, whether choosing a destination, picking a place to eat, or booking a vacation rental, the majority of individuals gravitate towards their peers for accurate testimonials on the product or service. In the case of vacation rentals, the mechanism of measuring reputation allows users to treat reviews as confirmation for whether a possible rental is clean, safe, or worth the try.

Alongside its heavy emphasis on reputation, Airbnb has created a “Trust and Safety team” that consists of hundreds of employees who work 24 /7 to screen Airbnb users. They do this by conducting extensive background checks on users and have developed a “risk scoring” mechanism by which reservations on the site are assessed for suspicious behavior. As the company’s site explains, “every Airbnb reservation is scored for risk before it’s confirmed. We use predictive analytics and machine learning to instantly evaluate hundreds of signals that help us flag and investigate suspicious activity before it happens.” In order to foster an environment of transparency, Airbnb prohibits users from deleting reviews that they disagree with. Their site also offers several guides and safety tips available for users to follow before booking or renting out a room.

While certain unpleasant experiences may be difficult to avoid, sites like Airbnb have installed measures to help mitigate this threat and ensure safe and secure transactions. Regulatory barriers may pose threats to the growth of these platforms and negatively impact consumers looking for affordable lodging options. Through online reviews, background checks, and other forms of self-regulation, the private sector can safely and effectively operate without the need for additional government regulations.

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