Local roadblocks slow down the sharing economy
Airbnb, the home sharing app, has been making waves across the world, because it allows people to let their homes, or part of their homes, to travelers, for a fraction of the fee they would pay to a hotel. Across the world, hotels, especially smaller hotels, are facing the squeeze. How do authorities at the central and local government levels respond to this sharing economy?
In a recent study of Airbnb’s experiences in Korea, Professor Sounman Hong and Sanghyun Lee of Yonsei University, South Korea, question the idea that local governments are more adaptive than central governments. Their findings suggest that local officials may be overly swayed by the political influence of narrow interest groups, thus overlooking the wider benefits of the sharing economy to society.
“It is always challenging for governments to respond to changes in the environment, especially in this turbulent era of rapid globalization and technological developments,” explains Professor Hong.
Previous studies have suggested that decentralized, bottom-up decision making is most conducive to policies that keep pace with these changes. Yet, across the world, central governments have shown far greater willingness to adapt regulations for the likes of Airbnb and Uber.
In early 2017, Hong and Lee first interviewed representatives of Airbnb on their company’s experiences in Asia, and particularly Korea. These interviews confirmed the researchers’ theory that local governments are far less willing to remove entry barriers to sharing service providers. With local officials facing more regular elections, they can be more short-sighted and less willing to consider the wider benefits to be gained from accommodating the sharing economy. The researchers point to the example of the Sharing Accommodation Act: drafted by Korea’s central government in 2016, it promotes regulatory change that local governments have been unwilling to implement.
For an alternative perspective, Hong and Lee then interviewed both central and local government officials in Korea. Those interviewed reinforced the message that political considerations have a far greater influence at the local level than at the central level. For the sharing economy, this means that officials base policy decisions on minimizing disruption to traditional suppliers, rather than enabling the wider public to benefit from cheaper and more responsive services. “Local interest groups can be highly organized,” explains Hong, “whereas most consumers have never experienced sharing services, and so are unlikely to apply collective pressure on local governments to relax restrictions.”
Some interviewees also flagged the relevance of most sharing service companies being based overseas. Local governments might be especially wary of how citizens interpret policies favoring foreign companies at the expense of domestic businesses.
Hong and Lee’s study emphasizes that sharing economy players seeking to enter a new market should consider at what government level relevant policies are made. If local officials, rather than central ones, are responsible, then these companies are more likely to encounter hostile regulations. The findings of this study could also be instrumental in raising awareness of the disproportionate influence of local interest groups among central and/or local authorities.
Updated in July 2019
Professor M. Jae Moon
Professor Jeonghye Choi