Sharing economy benefits lower income groups

Consumers from lower income groups look set to be the big beneficiaries of the peer-to-peer rental market generated through the sharing economy, according to the latest research from professors at New York University (NYU).

Peer-to-peer rental - of houses or cars, for example - has grown in popularity in recent years as an alternative to outright purchase. One of the things the research set out to determine was how these developments changed people's modes of consumption, says Arun Sundararajan, professor of information, operations and management sciences at NYU Stern, and one of the two researchers on the paper.

The research focused on peer-to-peer rental in the car market in San Francisco, where 10 per cent of the population rent cars through the sharing economy. Some of the findings were to be expected, says Prof Sundararajan - only a fraction of the population stopped buying and started renting instead, for example. But some findings were less obvious.

The good news, says Prof Sundararajan, is that consumers on below median income benefit, though there is no significant economic benefit to those on higher incomes. "In the context of cars, there are people who can't [afford to] own cars but can have access to a car without the cost of ownership."

There are several sources of value creation, says the researchers. First, in the car market vehicles are used more efficiently. Second, there is a group of consumers that can now afford to use cars, who previously could not. There is also a third source of value creation, says Prof Sundararajan: those who have cars and decide to rent them out.

"Ownership was the dominant form of getting access to something in the past, but now we have built these peer-to-peer lending networks and it seems to be a positive story for the economy," concludes Prof Sundararajan. "If you look at the fundamentals, variety goes up and that increases consumption, which increases growth."

Although the research was designed to develop an economic model to predict the effect of peer-to-peer lending, it has highlighted clear benefits for society as well. "It [peer-to-peer lending] has got a democratising effect on access to nice stuff," says Prof Sundararajan. "You are democratising access to a higher standard of living."

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