The Sharing Economy in our Modern Society

Cody Carlton
November 18, 2017

Submitted as coursework for PH240, Stanford University, Fall 2017


Fig. 1: Average cost difference between Airbnb and hotel rentals. (Source: C. Carlton. After Yaraghi and Ravi. [1])

The term "sharing economy" describes an economic model where individuals borrow or rent assets - goods or services - that are owned by another individual. A sharing economy is bolstered when an asset is particularly valuable and the asset is not fully utilized. Examples of individuals who use the sharing economy are those who rent their vehicle to others, those who rent out spare bedrooms, or those who complete tasks for others. Using the valuation of Uber and Airbnb, a report from the Brookings Institution projects the sharing economy to grow from $14 billion in 2014 to $335 billion by 2025. [1] Beneficial aspects of the sharing economy include benefits to private vehicle owners and environmental benefits. For private vehicles, reports estimate that these vehicles go unused for 95% of their lifetime. The sharing economy may impact the environment because shared resources reduce individual energy consumption, due to the fact that "people are able to share carbon-intensive goods". [1,2]

Internet as a Catalyst for the Sharing Economy

Sharing economies have existed for thousands of years, but the internet has promoted the sharing economy in recent years by making it easier to connect consumers and renters, and reducing transaction costs. [3] For example, websites such as Airbnb, Uber, and SnapGoods match up consumers and renters while online payment systems facilitate billing. Additionally, the internet can promote trust in sharing economy users through background checks, reviews, and ratings. Users can also use social media to identify renters that are friends or who have mutual friends. [3,4]

Companies and Sharing Economy

Businesses have also begun to take advantage of the interest in the sharing economy. Notable companies include Airbnb, Uber, and Lyft. Many of these sharing economy companies rose between 2008 and 2010 after the global financial crisis. [4] This indicates interest by consumers of earning extra income through sharing their assets. The growth may also have been encouraged by the reduced costs associated with some of these services. For example, rooms rented through Airbnb can be cheaper than hotels in major cities, as shown in Fig. 1. [1] Airbnb earns revenue by taking 9-15% of the rental fees from the approximately 4 million people they have served since 2008. [4]


Criticisms of the sharing economy include the regulatory uncertainty with these sharing services and liability. [3] For example, individuals that rent out their spare rooms have an advantage over hotels because these individuals do not pay hotel taxes. An example of liability issues with ride-sharing services Uber, Lyft, and SideCar is a fine issued by the California Public Utilities Commission in 2012 for operating as passenger carriers without evidence of public liability and property damage insurance coverage and engaging employee drivers without evidence of workers compensation insurance. [4] Employers are normally held liable for their employees. However, companies like Uber have historically treated their drivers as "independent contractors" and argue that they are not liable for the users' actions. [5]


Although the sharing economy is still a recent phenomenon, it is correlated with other changes in buyer-seller arrangements. Rental arrangements have extended beyond renting out private property. Consumers can rent music from Spotify and Apple Music, or use cloud computing for software and storage. This phenomenon, along with the convenience, accessibility, and financial benefits of asset sharing, indicate the rise of the sharing economy may bring about changes in our long-term economic model and present a competitive challenge for existing companies.

© Cody Carlton. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] N. Yaraghi and S. Ravi, "The Current and Future State of the Sharing Economy," Brookings India, Impact Series No. 032017, March 2017.

[3] A. Fremstad, A. Underwood, and S. Zahran, "The Environmental Impact of Sharing: Household and Urban Economies in CO2 Emissions," Ecol. Econ. 145, 137 (2017).

[3] "The Rise of the Sharing Economy," The Economist, 9 Mar 13.

[4] "All Eyes on the Sharing Economy," The Economist, 9 Mar 13.

[5] M. Isaac and N. Singer, "California Says Uber Driver Is Employee, Not a Contractor" New York Times, 17 Jun 15.