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The Sharing Economy’s Political Power for Liberty

It is rare that an election in San Francisco brings good news to the nation, but last Tuesday voters there defeated a referendum that would have interfered with Airbnb by limiting the number of nights people could rent out rooms in their homes. While this victory is good on policy grounds, it is even better for what it tells us about the capacity of the sharing economy to mobilize small businesses and consumers against onerous regulations.

Small businesses and consumers tend to lose out in politics, because they are diffuse groups where the gain for each individual from engaging in politics to shape regulations is small and the cost of organizing is high. In contrast, large businesses and labor unions are more concentrated interests and as a result  have more leverage. In politics concentrated interests tend to win out over diffuse groups.

Such concentrated interests stood to gain substantially from restrictions on Airbnb. Hotels are competitors of Airbnb and so are the labor unions of hotel workers. Generally owners who want to rent out apartments for short stays and their customers would be no match for these interests. But Airbnb lowers the cost of organizing, because it is internet based. This organizational ability levels the playing field. The sharing economy is the porcupine of politics with ample quills in the form of participating consumers and small businesses for defense against government regulation.

The victory is good for policy as well, providing efficient housing solutions for transients and guests of permanent residents in San Francisco who do not have enough room in their own homes. But it is not only efficient, it also helps temper inequality, helping two kinds of citizens who are generally not rich.  First, it opens up San Francisco to many who cannot afford a hotel. Second, and even more importantly, it helps some denizens of San Francisco exploit their  prime location for extra money. Note that information technology unlocks the capital of those of modest means by making it much easier to make use of most people’s most important investment—their home.

Those supporting the referendum claimed that Airbnb was reducing the availability of affordable housing by allowing outsiders to rent rooms. But Airbnb makes housing more affordable by helping people pay down their mortgages by renting out parts of their housing when they are not using it. And the much more obvious way to provide more affordable housing is to build more homes by deregulating housing construction and providing more generous zoning for large apartments.

By winning regulatory battles in big cities, the sharing economy is bringing not only efficiency but freedom to jurisdictions where concentrated interests have used big government to decrease these great goods of a market economy.

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