Asymmetrical Information - Megan McArdle

01.23.13

How Will AirBnB Change the World?

Peer-to-peer sharing will transform the economy, if regulators let it.

Tomio Geron of Forbes has a terrific new piece about AirBnB, and its many cousins in the emerging market for peer-to-peer sharing.  Cars, homes, pricey electronics, and even errands can now all be farmed out on the web, with the electronic intermediary taking a small cut.  

This is potentially revolutionary--though like many revolutions, it would mostly be taking us back to the future.  In the 19th century, and well into the 20th, it was common for people to rent out rooms in their homes (often with services like meals attached), and nearly as normal for owners of buggies or wagons to hire them out on an occasional basis.  In a world before insurance and pensions, people frequently thought of any asset as a sort of insurance policy--if you were widowed, or couldn't work, rental would help you make up some of your lost income.  By mid-century, this strategy was becoming less common: zoning regulations made it harder to rent out rooms, regulatory burdens raised the cost of becoming a landlord or a car rental service, and broadening liability law made this sort of thing a lot harder to insure.  

These are challenges that peer-to-peer services still have yet to surmount: at the moment, they're mostly operating under the radar, but if they get successful, you can be sure that regulators will start trying to bring them into (expensive) compliance.  But it's certainly possible that the web will lower search costs so much that AirBnB is economically viable even with hotel taxes and safety inspections.

Naturally, this raises the question: what then?  If peer-to-peer sharing really takes off, we're talking about far-reaching effects on the economy.  Consider retirement.  For years, economic policymakers have been considering raising the retirement age in order to deal with the problems of a slowing economy and burgeoning entitlement costs.  But what to do with those older workers?  Often they're out of a job at 59, or 62, and once an older worker loses their job, they have a very difficult time finding another one.  This sort of peer-to-peer piecework could help bridge the gap between peak earnings years and full retirement.  We'd be bringing people back into the workforce, but on a part-time, flexible basis that allows people to work with any physical limitations they might have as a result of aging.

Of course, there are changes that won't feel quite so unambiguously good.  America has a vast overcapacity of things like bedrooms, cars, and conference rooms, all of them idle most of the time.  Switching to a either a centralized sharing model (like Zipcar) or a peer-to-peer model like AirBnB, has the potential to radically decrease the need for empty cars outside empty rooms, empty chairs at empty tables.  

But this won't be good for the people who build all that stuff.  Over the long run, of course, it's great to be able to do more with less stuff.  But in the short run, the disruptions can be severe.  The Luddite artisanal textile workers who smashed mechanical textile looms were not wrong about what those looms meant for their livelihood: many of them probably never did recover from the switch to cheaper labor.   America already has more unemployment than we want.  A rapid decline in the need for cars, construction, and hotel labor would exacerbate that problem in the short term, even if it made us richer in the long-term.  

Other secondary effects will be more subtle.  On the one hand, a more human, less corporate relationship with the people we rent from (note that this has minuses as well as plusses, as anyone who has ever bought from a friend can attest).  On the other hand, I'd expect it to encourage larger, more anonymous agglomerations of people, since peer-to-peer sharing of things like cars contains a big bonus for density.  Peer to peer sharing could create something like a tax on low-density housing: you have to have your own car, and your own tools, and you can't rent your house out while you're on vacation.  There's a good chance this would translate into  igher prices for urban housing, or lower prices for rural homes.

Then, of course, there are the things that we can't envision--did anyone imagine, when penicillin was invented, that the sexual revolution would be one of its side effects?  But I think it's safe to say that unless the regulatory state kills this off, those changes, whatever they are, will be large.