The Sharing Economy: Why Making More Money Can Be Bad For You.

It’s far from obvious that the chance to make more money can be a bad thing. Services like AirBnB, which allow you to rent out a spare room (or even a spare couch) for money seem like intuitively good things. But the argument against it is an interesting one that takes us through some interesting economic theories, and the final result may convince you that the sharing economy may be worse than it once seemed. It’s not the conclusion of an argument that determines its strength, merely the premises it begins with and the validity of the steps it takes. Iairbnb have three lemmas, a term in math used for parts of an argument that can be made independently and have to be proved and defended separately. The sharing economy is a broad term used to refer to everything that allows people with under-utilized assets (like a spare guestroom that goes unused most of the time, or a spare hour when they can’t bring a book) to rent it to others.

Lemma 1: There exist extractive agents.
Lemma 2: Extractive agents derive no utility from equally divided marginal money.
Lemma 3: The sharing economy has non-zero costs to participation.

Lemma 1: Extractive agents. An extractive agent is a fancy term for a person or corporation who can charge you as much as they feel like, and there’s not much you can do about it. A perfect extractive agent is a hospital after an emergency trip. If you’re an uninsured American, you can be charged ten or more times the price an insurance company would pay, and because you were taken to the hospital after collapsing, you are legally obligated to pay, despite never consenting. This is an extreme case: more common examples include drug dealers to addicts and anyone who owns all the housing in a particular area (You can move from London to Manchester, but in doing so you would abandon all your friends and family. So even if you would have chosen Manchester before you set down roots in London had you known what the price now would be, at this point you’re stuck.)

The impact of you not being able to not pay is that people can charge you as much as they can get away with. The more money you have, the more that they can get away with. So the actual impact of everybody renting out their apartments on AirBnB is that hotels go out of business and apartments become more expensive. The average consumer gains nothing. Their landlord gains quite a bit. But why does it matter who gets the benefit? (Most of the good research on extraction comes from Marxist economists, and is a bit of a slog.)

Lemma 2: Extractive agents derive no utility from equally divided marginal money. Translating into plain english, if all rich people get additional money, their quality of life doesn’t actually increase. How could this be? Money is good, right? Well, money is good if you’re buying things that make your life better. Ultimately, numbers in your bank account (probably) don’t make your life much better.

Money is good because it can buy you goods and services. Shelter, food, tutors if you want to learn more about a subject, transportation to see friends, these things are good in themselves. But there are also things that are good because, so the argument goes, they are better than what others have. Is it really that much better to have a $6,000,000 yacht than a $1,000,000 yacht? Well, if your neighbor has a $3,000,000 yacht, yes. Whether you’re happy with your income has more to do with your income relative to your neighborhood than your income in an absolute sense.

So it matters how expensive your super-yacht is relative to your neighbor’s super-yacht. This means that if both you and your neighbor come into the same amount of money, it doesn’t really matter, as you’re trying to outspend each other. So extractive agents, like you and your neighbor, derive no happiness from additional money, because you’re both already so wealthy nothing other than competition matters. (If you want to learn more about this branch of thought, check out Thorstein Veblen)

Lemma 3: The sharing economy has non-zero costs to participation. It takes some amount of time and effort to rent out your house or your tools. This is not particularly controversial: the costs to you may not be high, but they do exist.

Taken together, this implies that the sharing economy will result in more money flowing to things that don’t matter, and ordinary people like you and me having to do additional work to stay in the same living conditions.

About Keller Scholl

Keller is an intellectual wanderer currently studying Philosophy, Politics and Economics at Oxford University. He likes thinking about the nature of minds, threats to the survival of humanity, models of political processes, and how people's uses of models affect politics. In his spare time he programs, sails, reads science fiction, and dances Lindy Hop.

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