Regulating the sharing economy

New article published in the Journal of the Academy of Marketing Science

Andrea Schneider, MMTC member and Associate Professor in Economics at Jönköping International Business School, has recently co-authored a paper with Patrick Gauss, Sonja Gensler, Michael Kortenhaus, and Nadine Riedel. The paper, published in the Journal of the Academy of Marketing Science External link, opens in new window. (JAMS), examines the impact of short-term rental regulations with a day cap on different stakeholders, including hosts, guests, the platform provider, and residents.

Abstract: Home-sharing platforms have experienced rapid growth over the last decade. Following negative publicity, many cities have started regulating the short-term rental market. Regulations often involve a cap on the number of days a property can be rented out on a short-term basis. We draw on rich data for short-term rentals on Airbnb and for the long-term rental market to examine the impact of short-term rental regulations with a day cap on various stakeholders: hosts, guests, the platform provider, and residents. Based on a difference-in-differences design, we document a sizable drop in Airbnb activity. Interestingly, not only targeted hosts (i.e., hosts with reservation days larger than the day cap) but also non-targeted hosts reduce their Airbnb activity. The reservation days of non-targeted hosts decrease between 26.27% and 51.89% depending on the treatment. Targeted hosts experience a similar decline. There is, nevertheless, significant non-compliance: more than one-third of hosts do not comply with enacted short-term rental regulations. Additional analyses show that few properties are redirected from short-term rental to long-term rental use and that there is no significant drop in long-term rents. Drawing on a theoretical model, we tie the estimated effects to changes in stakeholders’ welfare: Regulations significantly reduce the welfare of hosts, and the loss ranges between 46.30% and 9.02%. The welfare loss of the platform provider is proportional to the loss of the hosts. The welfare of guests decreases moderately ranging between 4.5% to 4.1%. The welfare of residents increases minimal. These results question the effectiveness and desirability of the studied short-term rental regulations.