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Network Effect, Business Dynamism and Wage Inequality in a Sharing Economy

Author

Listed:
  • Beladi Hamid
  • Smith Pamela

    (College of Business, University of Texas at San Antonio, San Antonio, TX 78249-0633, USA)

  • Chao Chi-Chur

    (Department of Economics, Feng Chia University, Taichung, Taiwan)

Abstract

This paper examines the network effect on income distribution and social welfare in a sharing economy with rural-urban migration. A rise in the urban network effect via an increase of the number of users attracts capital to the urban sector. Urban skilled wage rises but rural unskilled wage falls. Due to rising costs from capital rental and skilled wage, urban firms exit if the demand elasticity of urban goods is large. This business-dynamism effect via firm exit mitigates the skilled-unskilled wage gap in the long run. Furthermore, rural-urban migration is mitigated from business dynamism by relocating capital to the rural sector. Network effects thus serves as a mitigator to cope with urban unemployment. In addition, the role of network effects on the effects of changes in the endowments are examined in the sharing economy.

Suggested Citation

  • Beladi Hamid & Smith Pamela & Chao Chi-Chur, 2023. "Network Effect, Business Dynamism and Wage Inequality in a Sharing Economy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 23(1), pages 191-212, January.
    • Handle: RePEc:bpj:bejeap:v:23:y:2023:i:1:p:191-212:n:11
    DOI: 10.1515/bejeap-2022-0177
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    More about this item

    Keywords

    sharing economy; network effect; urban unemployment; business dynamism; wage inequality;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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