principles-sharing-economy-model

Benefits of the Sharing Economy Model

The sharing economy is a socio-economic model based on sharing “underutilized” assets, which can vary from spaces, to goods, to skills, for monetary or non-monetary benefits. Essentially, the sharing economy model is based on the collaboration between “who has” and “who wants” an asset, in order to improve the efficiency of its utilization.

Principles of the Sharing Economy Model

One of the main principles of the sharing economy model states that “an unused value is waste”, which highlights how goods are wasted during their idle time. This is because these assets, if made “accessible” to others, can be used to unlock and generate new social, economic, and environmental values. A practical example of this is the car, which on average remains unused more than 20 hours a day. Indeed, renting it to others can have many benefits, such as supplemental income for the owner and savings for the borrower. Thanks to the “access not ownership” principle, this economic system can succeed in the optimization of the underutilized assets.

In addition, the sharing model principles assert that what we think of as waste, because we don’t need or want it anymore, can have a value. This is similar to a “recycling principle”, but it can mean more as it implies the need for a study on product design in order to increase the products’ utilization cycles, and to reduce the use of natural resources.

Other main principles of the sharing economy model are “trust” and  “transparent and open data”. Indeed, the first is fundamental to enhance collaboration between people, and the latter has a key role in the innovation process.

Economist sharing economy

Sharing Economy through peer-to-peer rentals. Image via The Economist.

Drivers of Sharing Economy

Today this model is in the spotlight as many applications have been recently implemented. These cover many kinds of services and are used by millions of people every day.

This has been possible thanks to the opportunities provided by IT developments, social media, and mobile devices. The adoption of technology significantly reduced system transaction costs, increased the level of trust between people and, helped improve transparency and the sharing of information.

Today the sharing economy is growing rapidly and, according to Forbes, in 2013 it generated a revenue flow of $ 3.5 billion, with an impressive growth rate of 25% annually. According to Rachel Botsman, author of the book What’s Mine is Yours: The Rise of Collaborative Consumption, the consumer peer-to-peer rental market alone is worth $26 billion, but this value can vary if broader definitions are taken into account.

This rapid growth is also visible in new, emerging companies. An example of this is AirBnb, a $10 billion service which allows users to rent their unused rooms. It has become so popular that in 2012 it doubled its bookings from 5 to 10 million in only six months. Technology innovation played a central role in the sector’s success, yet it isn’t the only driving force of the rapid growth of the sharing economy. Other driving forces have been the global economic crisis, rising income inequality, and a shift in values and purchasing decisions. In fact, the great wave of sharing economy services born after a year of changes in 2008, not only coincided with the financial crisis, but also with the mass adoption of smartphones  (the launch of the iPhone) and social media outlets such as Facebook which reached more than 150 million users.

Another important related driver of the adoption of the sharing economy is population growth, which is a central factor in cities where “sharing services” take place. In the near future, 70% of world’s population will live in cities which is where sharing models are growing due to the high concentration of people providing the opportunity to scale these businesses.

Last but not least, the increased volatility in costs of natural resources and growing environmental pressures are other important sharing economy drivers and opportunities.

20130309_TQD010_0

Technology drives the sharing economy model. Image via The Economist.

Sharing Economy & Sustainability

Over and above the social and economic advantages generated by the sharing economy, such as the strengthening of communities and increased financial returns, it can also provide environmental benefits. The sharing economy improves the sustainability of individual consumption patterns, meaning lowered carbon emissions, waste, and natural resource utilization. This occurs because by sharing goods, we reduce the quantity of manufactured products and increase the demand of higher quality products.

A clear example of this is the car-share sector and the resultant environmental benefits. As people continue to share their cars, there will be fewer cars and related infrastructure projects required, and consequently there will be less natural resource consumption. Fewer cars means an increase in urban livability and a reduction in GHG emissions, with even larger impacts when individuals choose to share trips. Furthermore, the demand for higher-end cars increases the product life cycle of vehicles, shifting its product design from obsolescence, toward sustainability and circular economic models.

According to the recent IDDRI study, Sharing Economy: make it Sustainable, the shareable goods in advanced economies account for 25% of household expenditures and 33% of household waste. That means that, if sharing models works under favorable conditions, they can save up to 7% of the household budget and reduce 20% of household waste.

Despite the positive aspects of sharing underutilized goods, it’s important to note that this model alone is not sufficient to solve our ecological challenges, as this problem requires a systemic change. Universal forms of sharing, such as public transport, driven by the public sector can have a larger impact. Policy makers play a key role, as they can promote and match the different forms of sharing, both public and private, using the legislative framework and policies like green procurements and incentives.

Therefore, in order to leverage the sharing economy to improve sustainable consumption, it’s important that every group involved is aware and committed to pursuing the opportunities provided by the sharing economy model.

About The Author

Adriano Pilloni
Adriano, 25 years old, is a Master Graduate in Environmental Economics and Development from Rome Three University (Italy). During his education he developed a deep knowledge on Economics and a keen interest on Economic Theory with particular regard to energy markets, sustainability, environmental and agricultural issues. He has been proactive during his university time doing many projects and being elected by the students as Advisor of the Economics Dept. of his University. With two other students he developed a project on Food Sustainability which has been selected in the top 30 of the international Barilla contest "BCFN YES! 2013". He did the 2014 European edition of Extreme Blue, IBM's premier internship program for both graduate and undergraduate students. Now he is working as Junior Power and Gas Analyst at GDF SUEZ Italy.