THE SHARING ECONOMY AS AN EQUALIZING ECONOMY.

• Author: McGinnis, John O.

INTRODUCTION 330 I. AN INTRODUCTION TO THE SHARING ECONOMY 333 II. THE LAW AND ECONOMICS OF THE EQUALIZING FEATURES OF THE SHARING ECONOMY 336 A. De Soto and Enlivening Capital 337 B. Coase and the Reduction of Agency Costs 342 III. MEASURING THE EQUALIZING BENEFITS OF THE SHARING ECONOMY 345 IV. REGULATION'S DANGER TO THE EQUALIZING FEATURES OF THE SHARING ECONOMY 354 A. Incumbent Protection 355 B. Distinguishing Good from Bad Regulatory Arbitrage 357 C. Protecting Against New Threats 361 V. THE MORE GENERAL IMPLICATIONS OF THE SHARING ECONOMY FOR EQUALITY 367 CONCLUSION 368 INTRODUCTION

Today many claim that economic inequality is the most pressing social problem of our time. (1) But that contention sits uneasily with the rise and ubiquity of information technology that gives the middling classes more equal consumption of many things to which the rich have long had easy and excellent access. Information itself is one example. In years past, the rich had large private libraries and even librarians. Today most of the world's knowledge is available to be shared on the internet.

Beyond specific examples, basic economic principles show that an information society necessarily has important equalizing aspects. The most salient trend of our world is the way it is dematerializing. Information technology is making distance and material things relatively less salient. And since material things are scarce and often cannot be consumed jointly, but immaterial things, like information and virtual reality, are easily shared and can be consumed by everyone at once, consumption becomes more broadly distributed.

This Article considers how one transformation driven by the rise of information technology and computation--the sharing or gig economy--provides an example of an equalizer in our world. The sharing economy provides equalizing benefits on the both the supply and demand sides. On the supply side, its dematerializing qualities make possible markets in property and human capital, in which the middling classes possess a disproportionate share of their assets. On the demand side, it creates online agents that give middling classes opportunities for consumption once available only to the rich.

On the supply side, these markets particularly redound to the benefit of the nonrich, because they hold wealth predominandy in those kinds of assets rather than the securities and businesses that the rich disproportionately hold. As a result of the rise of the sharing economy, for instance, a homeowner or a car owner can generate income from his home or car through Airbnb and Uber.

The gig aspect of the sharing economy also creates new kinds of opportunities for supply by creating spot markets for jobs, like driving a car for hire or cooking, that are accessible to people with modest skills. These jobs also have amenities like flexible hours, which the rich have long enjoyed and which economists have shown are so much in demand that they can represent as much value as a substantial portion of the wage earned.

On the demand side, the dematerialization of the world reduces search and contracting costs, allowing online agents to be substituted for physical agents. Thus, instead of standing out in the street to hail a cab with the uncertainty of finding one, Uber gives much greater assurance of having a car at your door within minutes. One of the defining aspects of being rich previously was having agents to avoid hassles, but online agents today provide close substitutes. Having an Uber app on one's smartphone is a lot closer to having a chauffeur--a service only the rich once enjoyed.

Law and economics illuminate not only the efficiencies of the sharing economy but also these equalizing effects. On the supply side, a great law and economics theorist of the developing world, Hernado de Soto, showed that poor people stayed poor in no small part because they did not have property rights in their homes and other assets that they controlled. (2) As a result, they had difficulty generating income from the property in the form of a mortgage, or accumulating family capital by bequeathing their property to relatives. (3) De Soto argued that this was a substantial source of inequality. (4)

While the middle class in the developed world has long enjoyed formal property rights, information technology allows people to make effective divisions within them that can be sheared off and pooled to generate income. (5) It does so with real property, like homes; personal property, like cars; and human capital, like the capacity to cook excellent meals. Thus, it enlivens their capital, just as formal rights enliven the capital of the less well-off in the developing world. (6)

Given that taxation has not caught up with these sources of income, they are imperfectly measured in government income statistics. Moreover, for the mass of people who have little or no income beyond their salary,

this income is worth more than additional salary income dollar for dollar, because it diversifies sources of income and protects against life's risks. Thus, if hours on regular jobs are cut back, or one gets sick, another source of income is available to fall back on.

Relevant to the demand side, Ronald Coase showed the centrality of transaction costs, including search costs, to the economy. (7) Sometimes the costs of transactions are so high that the transactions cannot occur. (8) Examples of such transactions include many short-term room rentals and car hires. But information technology has sharply reduced such transaction costs. (9) And that has also redounded to the advantage of the middling classes. The rich could bring agents into their household even for transactions that were hard to get on the market, like reliable on-time drivers. Their help could find places to stay and guides that perfectly match their peculiar interests. But now these services are broadly available online.

The law and economics of the equalizing aspects of the sharing economy also show that regulations of this economy must be careful not to undermine its equalizing features. For instance, forcing Uber drivers to be employees with regular hours would harm both middling workers and consumers. It would make it harder for the workers to have the completely flexible hours that are valuable to them. And it would make it more difficult for the supply of cars to match the needs of passengers and give them reliable, real-time service, because this supply varies widely depending on time, weather, and events that are impossible to predict in advance. While some regulation is compatible with preserving equalizing features, there has been far too little attention to these dangers to equality.

This Article proceeds in five Parts. First, it briefly uses Airbnb as an example of the sharing economy, emphasizing its equalizing features. Second, it shows how to categorize and understand these equalizing features in terms of the law and economics theories of de Soto and Coase. Third, it responds to possible critiques of the equalizing thesis, such as the concern that the sharing economy makes its investors rich and has put some employees out of work. Fourth, it provides a taxonomy of the regulations proposed for the sharing economy--regulations that variously protect incumbents, prevent regulatory arbitrage, and address what are perceived to be new problems created by the sharing economy. It then suggests that focusing on the equality-creating features of the sharing economy helps determine which of these regulations are beneficial.

Finally, it argues that the sharing economy provides a window into the wider range of equalizers of the modern information economy. Even when we consider only income as a measure of equality, some new and growing sources of income may be hard to measure in government statistics, like much of that from the sharing economy, because technology is changing work structure so much that taxation has trouble keeping up. But even more importantly, technology is creating better nonmonetary conditions for jobs of average income workers, like flexibility and safety, that are also a part of the material condition of employment and of life. Finally, technology is creating aspects of consumption that redound particularly to the broad middle of society, like the ability to summon a quality ride wherever and whenever needed and to have fast access to information--benefits that were once largely the province of the rich. Only by accounting for such matters can one come to a fair assessment of whether equality of material condition is increasing or declining.

It should be noted that this Article does not argue that the sharing economy tempers the problem of poverty, although aspects of it may help some poor people. Inequality must be contrasted with poverty, both conceptually and empirically. (10) Poverty concerns the inability to meet basic needs and can be defined absolutely once the basic needs of society are determined. It also often involves various incapacities that prevent people from working at all. Inequality concerns the relative position of the rich and less well-off and thus is a distinct issue.

1. AN INTRODUCTION TO THE SHARING ECONOMY

   The sharing or gig economy provides an excellent example of how technology can both increase economic efficiency, and narrow the difference in material living experiences of the middle class and the rich. It does both by creating more liquid markets in more kinds of assets, unlocking the incomegenerating potential of the property that middle-income groups own, and the skills that millions have. It also creates online agents, making possible bargains that rich people with their paid physical agents could already strike. It gives greater flexibility and autonomy to middle-income groups that many higher-income professionals already enjoy.

   The growing and vibrant sharing economy is a child of computation and the internet. (11) It combines our greater...