Jan 2, 2019, 12:35 AM ETPodcast, Interview

a16z Podcast | An Economics Take on the Sharing Economy

The "sharing economy" is defined as a shift from 20th-century institutions that hire employees and acquire resources to a model where prices and supply are matched via market mechanisms.
Despite the "sharing" nomenclature, the core activity is commercial capitalism that integrates elements of gift-giving with supply-and-demand pricing.
This model creates "firm-market hybrids," acting as an organizational evolution between traditional 18th-century markets and 20th-century industrial firms.

GDP fails to capture consumer surplus generated by digital technologies, such as the value derived from Google searches or Facebook connections.
GDP is an aggregate measure that does not reflect the distribution of wealth or the democratization of access to high-standard-of-living goods (e.g., smartphones or cars).
Traditional GDP metrics ignore quality-of-life improvements inherent in crowd-based work, such as work-life balance, flexibility, and the ability to pursue personal interests.
The mainstream adoption of crowd-based capitalism is expected to trigger a paradigm shift toward more inclusive economic indicators that measure progress beyond monetary flows.

Increased Capital Efficiency: The sharing economy improves long-term productivity by maximizing the utilization of existing assets (e.g., underused cars or rooms).
Increased Consumption: Greater variety in goods and services (e.g., Airbnb configurations vs. standard hotels) drives higher consumption levels, which economists agree leads to economic growth.
Democratization of Access: Peer-to-peer rental markets allow individuals to access high-value goods without the barrier of ownership, effectively equalizing opportunities for those below median incomes.
Shift in Ownership: By moving individuals from labor providers to "tiny business owners," the model increases the fraction of the population that owns the means of production.
Inequality Mitigation: Arun Sundararajan projects that value creation for those below the median income grows at a significantly higher rate than for high-income earners, potentially narrowing the wealth gap.
JPMorgan Chase Data: While the top 20% earn slightly more in aggregate from the sharing economy, the income distribution is more compressed relative to the 10:1 disparity seen in the traditional economy.
Economies of Scale: While the shift to millions of "makers" risks losing traditional manufacturing economies of scale, Sundararajan argues these gains will likely be reclaimed through new efficiencies.

The primary policy challenge of the next two decades is establishing a funding model for a 21st-century social safety net suitable for the "micro-entrepreneur" workforce.
Traditional 20th-century safety nets were designed for full-time employees with single employers, leaving gig workers without comparable funding for health insurance or income stability.
Proposed solutions involve a three-way partnership model (individual, government, and third-party institutions) similar to the creation of 401(k) plans, rather than sole government provision.
Sundararajan predicts the ecosystem for these third-party insurance and benefit providers will mature much faster now than during the 100-year transition to the pension model.

Reputation Systems: A critical risk is "data Darwinism," where algorithmic ratings and reputation scores determine future employment access, potentially entrenching biases or punishing individuals for isolated incidents.
Algorithmic Correction: The solution involves training algorithms to detect and correct human biases inherent in rating systems, rather than attempting to remove human bias entirely.
Shift in Regulatory Enforcement: Regulatory responsibility is shifting from government agencies to platforms that hold the data, allowing for more efficient enforcement (e.g., platforms collecting taxes or monitoring discrimination).
Delegation Model: Instead of platforms handing data to the government ("give us your data"), the government should mandate compliance and delegate enforcement to the data holder, aligning incentives for safety and anti-discrimination.
New Stakeholders: Regulatory roles are expanding beyond platforms to include non-governmental entities, such as homeowner associations setting policies for short-term rentals.
Evolution of Regulation: Contrary to early claims that the sharing economy needs no regulation, the sector is heavily regulated, but the enforcement mechanism has decentralized to the party with the necessary data.