When sharing is scaring

The sharing economy has drawn some unpleasant headlines recently: rape, assault and the alleged failure to do proper background checks. The horror stories have added fuel to the debate over the ability of an industry to regulate itself and the necessity of government intervention. 

"To paint a broad brush to say that there are major trust issues or safety issues in the sharing economy is a bit of sensationalism," says Billee Howard, CEO of Brandthropologie and author of the book "We-commerce."

According to Airbnb, there have been 340 complaints over property damage in 2015 out of 23 million guest stays — that's fewer than one in every 67,000 guests. Guest complaints about hosts are "incredibly rare," the company says. Uber, which is accused by several U.S. attorneys general of having substandard background checks that failed to catch dozens of people with criminal records, did not return a request for comment. 

Arvind Malhotra, professor of entrepreneurship at the University of North Carolina at Chapel Hill, says while the numbers may be small, it naturally raises suspicions. "It's an emerging problem. Similar issues, when they crop up in diverse locations, tend to indicate possible system breakdown."

He says this poses a double risk to sharing-economy companies because negative stories can scare away both customers and suppliers, like drivers and hosts. 

For advocates of the sharing economy, this is exactly what they say will drive improvements, as opposed to government intervention. 

"We generally don't start by saying let's get the government involved," says Arun Sundararajan, professor of  information, operations and management sciences at New York University's Stern School of Business.  "In the American economy, what we've traditionally done is let the market provide what it can and then have the government step in and surgically correct market failures." 

In other words, competition can sometimes be its own regulator. Matthew Mitchell, senior research fellow at George Mason University's Mercatus Center, says excessive regulation can have similar effects to under-regulation. "Ironically, highly regulated industries, like taxi industries, have some of the worst safety and quality records in part because regulations have protected incumbents from any sort of competition that might serve customers better."

UNC's Malhotra says industries trying to protect their image will likely move faster than lawsuits and government regulation alone, but "somewhere there's a happy medium." After all, we don't leave businesses to develop their own fire codes.