BENEFITS OF SHARING ECONOMY

In economic terms, there is an expectation that the development of the sharing economy may come to
benefit society at large. The promise that the sharing economy holds is at least fivefold: 6

1. Sharing services may increase consumer utility by offering new kinds of services that were not previously
available. For instance, Airbnb allows people to stay in more "authentic" accommodation than traditional
hostels, some people prefer flats to a hotel room (so that one can cook, so that the whole family can live
together, etc.), and whereas hotels have tended to cluster in certain areas, peer-to-peer accommodation
offers a greater variety in terms of location. For instance, most New York City hotels are situated in
midtown Manhattan, whereas Airbnb listings offer much greater flexibility in terms of which locations are
available.7
2. Sharing services may also allow for more effective resource allocation and utilisation. In the jargon of the
sharing economy literature, "one does not want a drilling machine, but a hole in the wall", and "one does
not want a car per se but transportation", so it is arguably wasteful for all households to own drills and
cars that see very little use. Following this logic, it would be more economical for fewer people to buy cars
and drills and instead simply rent the asset when the need arises. The resources saved from producing
fewer cars and drills could instead be invested in creating other goods or services to increase consumer
welfare (or analogously, people save money if they can rent instead of buying, which enables them to
spend more on other goods or services). In economic terms, the sharing economy increases utility by
shifting the budget constraints of individual consumers outwards. Likewise, the owners of cars and drills
can choose to make extra money by renting out their assets, which increases their utility. Conversely,
while the sharing economy is often expected to result in a "greening" of the economy, this is by no means
an inevitable outcome and will depend on how the money that consumers save by shifting from owning to
renting assets is ultimately spent.
3. It has been argued that sharing economy services have positive societal externality effects by increasing
social cohesion and third-person trust, which the social capital literature finds to be positively correlated
with various indicators of well-being as well as economic growth.8 This effect arises because peer-to-peer
commercial transactions lead people to interact with others, in many cases even with people from
"outgroups".
4. Sharing economy platforms may increase productivity and economic efficiency by allowing for a more
effective allocation of labour and capital/assets. For example, research based on a comprehensive study
of data from the US has found that driver redundancies are much lower among Uber drivers than among
regular taxi drivers.9This is due to Uber's use of price surging, which means that drivers are happy to
adjust their working hours to meet demand. During peak hours, prices surge, leading more drivers to offer
their services on Uber; conversely, supply declines as demand dwindles. Anybody who has tried in vain
to get a taxi on a late Saturday night can appreciate why this increases consumer welfare. Moreover,
according to this research, even though Uber operates with lower per hour prices than traditional taxi
companies, the per hour remuneration in the US is in fact comparable.
5. In some cases, there is nothing to prevent or prohibit traditional businesses from using the same
techniques as sharing economy platforms. For example, apart from some statutory maximum prices in
some countries, taxi companies could also adjust prices to demand, along the lines of Uber's price
surging, and they could use apps to ease access to taxi rides. 10 However, sharing economy services
have been the harbingers of innovation and new business models. As such, the sharing economy
services are a strong force of "Schumpeterian" or innovation-driven growth that help unlock economic
potentials and give agents more freedom over their consumer choices.

http://archive.intereconomics.eu/year/2017/1/regulating-the-european-sharing-economy-state-of-play-
and-challenges/

ANALYSIS
Business entities or private individuals

If sharing economy providers are to be considered as independent contractors, we must in turn ask
whether and under what conditions they should be considered business entities rather than simply private
individuals. How this question is answered will have important regulatory repercussions, as businesses
are regulated and must meet numerous administrative and regulatory requirements. For example,
legislation concerning consumer rights and consumer protection generally foresees a relationship
between individuals and businesses, but it may not apply to relationships between two individuals. 19

On the one hand, it may seem excessive to expect a casual sharing economy service provider to
understand and ensure compliance with a vast body of regulation, and it could well stifle the sharing
economy if service providers are equated with businesses in all regards. On the other hand, if sharing
economy providers are not considered businesses, and various industry and business regulations do not
apply to them, then they might be construed as having an unfair advantage by dodging the rules that non-
sharing operators must follow. Obviously, the expansion of sharing economy services will only benefit
society if they truly represent something that is more efficient and yields higher customer utility – and not
if their growth simply reflects that they are not held to the same requirements and standards as other
businesses due to the regulatory ambiguity under which they operate.

The prevailing interpretation, and the one propagated by platforms fearing the consequences if they were
to incur a vast mesh of legal responsibilities, may be that platforms are intermediaries only. It is well
established, however, that platforms can be held liable for what they are used for under certain
circumstances, so depending on the specifics, sharing economy platforms could conceivably face certain
obligations that must be assessed on a case-by-case basis.20

Contractual relationship

Another range of questions arise concerning the nature of the contractual relationship entered into when
somebody uses a sharing economy platform, and the liabilities and obligations that stem from the nature
of the relationship for both the platform and the service provider. While some platforms are passive,
others take a more active role. For example, most sharing platforms actively manage a trust-building user
review scheme: Uber offers comprehensive guidance to drivers concerning the legal side of ride-sharing,
while Airbnb intermediates in a way so that the rent is only paid out to the host once the guest has
ascertained that the accommodation lives up to the agreed stipulations. Both platforms offer "guarantees"
to users in case of accidents or other mishaps. This suggests that sharing economy platforms may in
reality face more comprehensive liabilities and obligations.

While it is probably excessive to consider a sharing economy platform a contracting party and the actual
service provider a subcontractor, this does not absolve the platform of any responsibility. For example, if
a personal transportation platform failed to weed out a service provider with a criminal record, despite
having set up procedures to do so, and the person committed a felony against a customer, it is
reasonable that the platform might incur some legal responsibility. This follows existing jurisprudence on
platform liabilities,21 but since sharing economy platforms are clearly different from other platforms (such
as eBay) that previous rulings have covered, it is likely that their more extensive role implies more
comprehensive responsibilities and liabilities.

Employment

 As mentioned above, one important question to resolve is whether sharing economy service
providers (i.e. the Uber driver, the Airbnb landlord, etc.) are to be considered employees of the
sharing platform or independent contractors. This is a crucial question, because employees have
certain rights with regards to working conditions, paid leave under various circumstances, etc.
Furthermore, they are entitled to remuneration for expenses, whereas independent contractors
are not. For example, Uber drivers in the US have founded a union of sorts to centralise price
 bargaining with Uber, but if they are considered independent contractors rather than employees
this would probably amount to an illegal cartel trying to coordinate prices between several
business ventures. Several lawsuits concerning the status of Uber drivers have already been
pursued in the US, but the legal differences are too large for American jurisprudence to yield any
definitive answers for a European context.

 When a student boards and lodges in a dormitory, is there a contract of lease

o ANS.: No. The contract is not designated specifically under the Civil Code; hence, it is an
innominate contract. It is, however believed that the contract can be denominated as the
“contract of board and lodging.” 1
 Membership in a Homeowners’ Association Is Voluntary and Cannot Be Unilaterally Forced 2
 Public safety cannot be stipulated against. (Commission Report, p. 142).

 First, common law special relationships assume that certain transactions pose unique health,
safety, and financial concerns for consumers.3
 Related to the unique health and safety risks of certain transactions, common law special
relationships assume that certain service providers occupy a disproportionately strong bargaining
position in relation to consumers.
o For example, both innkeepers and common carriers have a duty of non-discrimination-
absent extenuating circumstances, each must accept all guests or passengers.4
 Finally, common law special relationships typically assume that the service provider is the least-
cost avoider-the party who can adopt precautions against a given risk at the lowest cost. These
relationships therefore allocate greater liability to the service provider rather than the consumer.

 Just as sellers and lessors represent the least-cost avoider, so do hotels, taxis, landlords, and
other service providers with respect to the average guest, passenger, tenant, or consumer.

 As discussed below, sharing platforms disrupt some of the fundamental assumptions underlying
7
common law "special relationships." Unlike two-party relationships between service providers
and consumers, sharing platforms create three-party relationships between the platform, provider,
and user. These new relationships require a different allocation of liability and statutory
protection.

 For short-term rentals, relevant local ordinances include residential zoning restrictions, health and
fire codes, transient occupancy taxes, and licensing and permitting regimes.ss

 Even as cities and states begin to pass legislation tailored to sharing platforms, each jurisdiction
takes a different approach.

Liabilities

For the most part, transactions on sharing platforms do not introduce new risks but new parties. The
same accidents can occur in hotels as apartments, taxis as TNC cars, and ski rental shops as P2P
ski rental services. For that reason, regulators have argued that providers on sharing platforms

1Paras, p. 333
2Sta. Clara Homeowners’ Association
 (thru its Board of Directors), etc. v. Spouses Victor Ma. Gaston &
Lydia Gaston GR 141961, Jan. 23, 2002

3
Airbnb 8, at 1078
4
 should meet the same requirements as traditional service providers. But the balance of power has
shifted between the parties on either side of those accidents. Providers do not have the same "special
relationship" to users that traditionally justified a higher regulatory burden on service providers. Nor
can regulators hold platforms indirectly liable for all accidents resulting from transactions on the
platform. To provide clear guidance to courts and enforcement agencies, regulators must decide how
to divide liability between providers and platforms.5

(1) Service Providers

 The sharing economy disrupts many of the assumptions that traditionally justified heightened
duties for providers: the particular vulnerability of consumers, the superior bargaining position of
providers in relation to consumers, and the treatment of providers as least-cost avoiders.
 Providers on sharing platforms are typically casual or informal market participants. They operate
on a smaller scale than traditional service providers (a single bedroom rather than a hotel), use
personal resources (a personal vehicle or home) rather than commercial assets (a licensed taxi
or commercial building), and are likely less sophisticated than
 Thus, providers may be unable to shoulder the same regulatory burdens that apply to traditional
service providers.
 Moreover, sharing platforms standardize transactions such that providers no longer clearly
occupy a superior bargaining position.

 The terms of the platform govern all aspects of the transaction, leaving both providers and users
86
only the freedom to accept or reject a potential match." In other cases, the platform provides a
default contract or baseline set of terms, but allows users and providers to negotiate privately.'

 Finally, on sharing platforms, providers do not necessarily represent the least-cost avoider.

 Nor can providers afford or even feasibly adopt the security measures available to small
businesses.

 Given the relative vulnerability of casual providers, it is inappropriate to impose the same duties
for providers on sharing platforms as traditional service providers. Regulators may therefore be
tempted to establish indirect liability for platforms for accidents related to transactions on the
platform.

 Precisely because users and providers have a substantial financial and

personal interest in their scores, reputation systems may raise consumer
protection issues. In particular, the design of reputation systems can
inadvertently promote discriminatory behavior.

(2) Platform

In many cases, the sharing platform represents either the least-cost avoider or the easiest target for
enforcement agencies. But sharing platforms act-or purport to act-as neutral intermediaries that facilitate
194
transactions between users and providers. Therefore, regulators can only hold platforms accountable
19 5
for user and provider activity through indirect liability.

5
airbnb 8, at 1099
Providers on some sharing platforms may qualify as independent contractors while others do not, and
some jurisdictions may reach conflicting decisions.

Assuming that platforms do act as online intermediaries, regulators may still hold platforms liable through
indirect liability. Scholars disagree on whether internet intermediary liability is desirable, and if so, under
20 2
what circumstances. This Section describes three models for intermediary liability that apply to other
online services:

(1) the absolute immunity of the Communications Decency Act ("CDA")

(2) the qualified immunity or safe harbors of the Digital Millennium Copyright Right Act ("DMCA"), and

(3) an active duty to monitor, comparable to the voluntary enforcement practices of payment
intermediaries.

Regulators could adapt one of these models to establish liability for sharing platforms. For example,
regulators could grant platforms immunity for harms that arise from transactions between users and
providers. On the other hand, regulators might also create a notice-based system where platforms only
become liable for the actions of providers when the platform has previously received notice of the
provider's poor conduct.

Conclusion

Unlike internet service providers, sharing companies are not passive; most platforms exercise at least
some control over provider and user transactions, and almost all platforms have a financial stake in
transactions between users and providers. This suggests that immunity for platforms is not appropriate.
In addition, a notice-based system of liability comparable to the DMCA §512(c) safe harbor may not
sufficiently safeguard users. Yet imposing an affirmative duty to monitor user and provider compliance
with local regulations is extremely costly. Even the comparatively easier task of screening offending
merchants from payment systems has proven controversial.

Regulators will likely need to address sharing platform liability not just on a case-by-case basis, but also
on an issue-by-issue basis. This Note therefore proposes that regulators (1) adopt tiered regulatory
schemes for providers, (2) design nuanced frameworks for intermediary liability, and (3) impose duties on
platforms and providers to third parties.

1. Tiered Regulation for Providers

Rather than imposing caps on use, regulators should impose higher taxes and stricter regulations on high
volume providers.22' Tiered regulation properly allocates risk to repeat players who benefit most from the
platform. For instance, providers who transact at volumes comparable to bed and breakfasts should incur
similar liability to a traditional service provider.

2. Limited Intermediary Liability for Platforms

Given the public interest in consumer and worker welfare, absolute immunity for sharing platforms rarely
makes sense. Notice-based systems may also fail to adequately protect consumers, because platforms
only become liable after a user has interacted with a dangerous provider. Yet imposing affirmative duties
on internet intermediaries is an equally extreme solution. Regulators should therefore consider
addressing platform liability on an issue-by-issue basis.

See p. 1112 (Katz)

Platforms do generally provide a complaint hotline for resolving small
damages claims or other specific grievances, but some platforms have
notably poor track records in responding to user and provider complaints."'

References:

 1. Roger A. Cunningham, The New Implied and Statutory Warranties of Habitability in Residential
Leases: From Contract to Status, 16 URB. L. ANN. 3, 74 (1979). One of the most widely cited
cases on point, Javins v. FirstNat' Realty Corp., 428 F.2d 1071 (D.C.
 Cir. 1970), described the modern lease agreement as a contract for "a well[-]known package of
goods and services-a package which includes not merely walls and ceilings, but also adequate
heat, light and ventilation, serviceable plumbing facilities, secure windows and doors, proper
sanitation, and proper maintenance." Id. at 1074.