Economic Explanation: From Sharecropping to the Sharing Economy

I examine the sharing economy using a contractual approach pioneered by Cheung (1969, The Theory of Share Tenancy: With Special Application to Asian Agriculture and the First Phase of Taiwan Land Reform. Chicago: Chicago University Press). Progress in information technology that reduces transactions costs leads to the emergence of rental contract to supersede outright ownership, especially among goods and services in which search and monitoring costs had been major trade barriers. I present evidence that ridesharing indeed significantly lowers wait times. Trust cannot explain the economic success of some sharing economy companies (e. g., Airbnb, Uber) but not others (e. g., SnapGoods). Sharing power drill, the poster child of the sharing economy, is an economic failure because the major trade barrier is transportation rather than transaction costs. Changes in transaction costs lead to changes in contractual arrangements. In the case of contractual choice between ridesharing platform and drivers, findings about drivers’ characteristics and contract details are consistent with the theory of share tenancy. My analysis also sheds light on the current debate on the employment status of driver-partners.