Friday, October 24, 2014

Transferable Sharing Rights: A Theoretical Model for Regulating Airbnb and the Short-Term Rental Market

For the last several months, I have been interested in thinking about how to regulate the sharing economy and, in particular, the short-term rental market typified by Internet sites like Airbnb.  Thus far, it seems only tentative, relatively weak proposals to the problem have been offered.  I wanted to try something different--something big--like a regulatory scheme that would permit the short-term rental market to operate while also address its externalities.  My first shot at this is a working draft of an essay, which I've placed on SSRN, entitled, Transferable Sharing Rights: A Theoretical Model for Regulating Airbnb and the Short-Term Rental Market.  Here is the abstract:

This short essay proposes a theoretical model for regulating the short-term rental market, which is typified by online markets such as The basic mechanism proposed here is a “transferable sharing right” (TSR), which is modeled on existing transferable development rights regimes. The proposed TSR regime would provide cities a means of regulating short-term rentals while also charging a fee equal to externalities and lost city revenue resulting from short-term rentals. Further, TSRs could be used to re-invest in neighborhoods where short-term rentals occur or to drive economic development to neighborhoods where cities seek to encourage tourism.
I welcome comments, either on the blog, or personally at millers @ uidaho dot edu.  

Stephen R. Miller

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I searched for the term "insurance" in the article and didn't find any. Unless the renter is required to obtain sufficient liability insurance to cover accidents and the like, not all externalities will be covered- namely, consumers of such services will pay a heavy price for accidents. In addition, small-time renters will risk losing their homes and their other assets.

Posted by: Jesse Richardson | Oct 25, 2014 6:38:40 AM

Thanks, Jesse. I agree with you that insurance is a necessity; I don't, however, believe it is the major regulatory hurdle at this point. Most short-term rental providers already voluntarily provide insurance for their listings. For instance, Airbnb provides a $1 million insurance policy on each listing. See That said, I do believe it is worth requiring that the third-party platforms, such as Airbnb, provide insurance, and should be added to the regulatory model. How to address the other externalities on neighborhoods, buildings, and city revenue seem harder to address, and thus that is where I focused.

Posted by: Stephen R. Miller | Oct 25, 2014 2:19:16 PM