Sharing Economy Boosts Consumer Well-Being, Expert Says

Arun SundararajanAlthough the new "sharing economy" has raised its share of controversy, a presentation at the Bank's Atlanta headquarters highlighted some of the benefits of these peer-to-peer markets.

During a recent Public Affairs Forum at the Atlanta Fed's headquarters, New York University Professor Arun Sundararajan discussed one especially promising benefit—the potential to "democratize a higher standard of living." In other words, nice things are no longer just for people who can afford to own them.

My house is your house, for a fee
Instead, the sharing economy allows consumers to access goods—a car or a designer purse, for example—without bearing the costs of ownership. Popular examples include Lyft and Uber (transportation), Airbnb (lodging), and StyleLend (apparel and accessories). What these services have in common is that they use technology to connect supply and demand in new ways.

In his recent work, Sundararajan and coauthor Samuel Fraiberger analyzed two years of data from Getaround, a peer-to-peer car-sharing platform in San Francisco. Their model suggests that consumer well-being improves as these types of marketplaces expand. The benefits were up to three times greater for lower-income consumers. That's partly because people are able to consume goods that were previously unaffordable. Sharing services also allow people to use their assets more efficiently—for example, by renting out their cars or spare rooms. People who switch from owning to renting, meanwhile, benefit from lower costs.

The economic impacts are broad. The sharing economy not only helps people monetize their underused assets but also lowers the barriers to entrepreneurialism. In fact, Sundararajan noted that many of these companies sprang up during the Great Recession.

As the name implies, the sharing economy also has a unique social element. New technology has always raised concerns about isolation, but Sundararajan believes the sharing economy makes it easier to build community and connect with others.

Why now?
The sharing economy, while no longer on the fringes, is still a new phenomenon. What has changed to make the model work? Sundararajan noted a few shifts, including the "consumerization" of digital technology, especially mobile and social media. Technology has also engendered new forms of trust—for example, by displaying online ratings and reviews for both buyers and sellers. Other factors such as growing urbanization have also played a role, he noted.

While the benefits are potentially immense, the sharing economy is bringing up new challenges for regulators and for incumbent businesses such as hotels and rental car companies.

The Public Affairs Forums feature noted speakers who explore regional and national issues from an economic perspective.