WASHINGTON (July 29, 2014) – Emerging “peer production” markets could unlock trillions in previously dormant capital, making it essential that lawmakers and regulators do not strangle these new business models before they have the opportunity to develop, two R Street Institute senior fellows write in a new paper.

Co-authored by R Street Executive Director Andrew Moylan and Editor-in-Chief R.J. Lehmann, “Five principles for regulating the peer production economy” finds that new technologies and changes in the way we communicate have created more opportunities for individuals and small groups either to develop and build upon innovative ideas or to bring their marginal capital and labor into productive use.

With new services like Lyft, Airbnb and Etsy connecting buyers directly to sellers, the peer production economy has helped to democratize production, liberate underutilized capital and reduce costs for consumers and producers.

“In some cases, this shift has allowed small startups to threaten dominant market incumbents, as long-standing asset-intensive firms now must compete with new firms than can tap the resources of privately held assets by individuals who aren’t using them fully,” Moylan and Lehmann write. “Overall, the effect has been to eliminate many of the benefits of being big.”

“Alas, the development of these new modes of doing business has been threatened by legislators and regulators – particularly on the state and local level – who in too many cases attempt to apply regulatory models developed in an earlier era to the individuals and small firms that are innovating through peer production,” they add. “These actions do little to protect consumers, but rather they prevent innovative ideas from coming to market and keep potential service providers sidelined.”

The authors lay out five principles for legislators and regulators to take into consideration when thinking about how to regulate the peer production economy.

Regulators should tread lightly, allowing firms and industries to self-regulate to the extent practical. They also should consider using existing market-regulating instruments, such as insurance contracts and surety and fidelity bonds, rather than prescriptive regulation.

The authors also recommend reduced reliance on occupational licensing and that regulators exercise extreme caution before any attempt to determine the “right” balance of buyers and sellers. Finally, regulators and legislators should strive for neutrality in regulation, so as not to benefit either incumbent or emerging business models at the expense of others.

“At a minimum, regulators should think very carefully about banning any peer production activity that isn’t already banned and should review existing laws to assure that policies created for one purpose do not place an undue burden on the sharing economy,” the authors write. “With a sensible, minimal regulatory structure, the peer production economy can and will create enormous new wealth, generate jobs and put previously underutilized resources to work,” said Moylan.

The full paper can be found here:


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