With emerging markets, as with anything new, people will be skeptical of how it improves the status quo. Remember Sunset Boulevard? In it, Gloria Swanson plays Norma Desmond, an aging silent film actress unable to accept her faded spotlight. She clings to the applause of former successes, unable to free herself from the past. Likewise, critics of the collaborative economy cling to an economy of yesteryear: a model built on hierarchical dynamics that evolved from the industrial revolution, but is limited in its opportunities to create employee mobility in today’s digital marketplaces.

Peer-to-peer marketplaces are not substitutes for the old economy, but new doors of opportunities for entrepreneurs and consumers.

In their paper, “Peer-to-Peer Markets in the Sharing Economy,” Samuel Fraberger and Arun Sundararajan develop the first dynamic model of an economy with a peer-to-peer rental market. They show how this sharing economy will affect different segments of the population, especially those earning below average incomes.

According to the data they gathered, below-median income consumers fuel the highest demand:

“Specifically, below-median income consumers contribute a higher fraction of demand, and are almost twice as likely (30% versus 18% in our baseline calibration) to give up ownership, driven in part by their greater propensity to avoid the period fixed costs of ownership when a peer-to-peer rental alternative exists. Additionally, a significantly higher fraction of below-median consumers choose to supply newer vehicles for peer-to-peer rental. Consequently, the percentage surplus gains enjoyed by below-median income consumers are significantly higher than those enjoyed by above-median income consumers (Samuel Fraberger and Arun Sundararajan).”

So, the results are in, and the future looks bright for people looking to make an extra income from their assets. Assets such as cars, which on average, get used only five percent of the time. He concludes that the long-term benefits outweigh the costs, making this kind of market a profitable option for future workers, entrepreneurs, and companies of all sizes.

What wasn’t affordable to buy before becomes accessible via rental, thus improving people’s quality of life. Someone might not have been able to buy a Lexus, but can now rent it through Getaround and enjoy the benefits minus the enormous expense.

Their predictions reveal improvements on consumer welfare over time:

“Consistent finding is that peer-to-peer improves consumer welfare… increases in surplus grow consistently with the fraction of the population who have access to the marketplace.”

It seems that everyone is talking about the collaborative economy these days, but critics don’t always take into account all the factors that make up this complex system. With time comes change, but with change comes adapting to, not necessarily a substitute for the old economy, but a complimentary one that helps below median income earners and more. Although this economy is still evolving, it has met the fifteen billion dollar mark and is rising each year. The future gains of embarking in the collaborative realm look bright for those who adapt to its challenges, but tragic for the Norma Desmond’s of the digital age.

Source article:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2574337