Econtalk – Michael Munger on Sharing, Transaction Costs, and Tomorrow 3.0

Key Takeaways
  • The ‘Sharing Economy’ is slated to continue to grow and improve our lives by reducing transaction costs
  • Uber, Airbnb, BlaBlaCar, and Wikipedia are all examples of the sharing economy
  • User reputations enable us to trust strangers to reduce our own costs of goods & services
  • Platforms aggregate users solving the triangulation problem, while building user trust and successful transfer via user reputations
  • Michael C Munger is a professor at Duke University in the Departments of Political Science, in Economics, and in Public Policy
  • He has new book – Tomorrow 3.0 Transactions Costs & the Sharing Economy
    • His book is short on purpose → to reduce the transaction cost of transmitting information to the reader
Why do we own so many things?
  • Owning consumer durables represents a stream of services that extends into the future
  • There are items of which we will never get adequate value from owning
  • There are currently 110 million power drills in the United States, with the median power drill being used a total of 30 minutes over the course of its lifetime
  • We own instead of sharing due to transaction costs
Sharing Becomes More Feasible as the Transaction Costs Involved Decrease 
  • Renting is a way of sharing a good with people you don’t know. The owner of the good derives profit from handling the transaction costs involved.
  • In the future we could have an app that creates a platform for renting (sharing). Such app would allow users on a platform to request an item they need, have an autonomous car transport the item and drop it off into a smart pod on your property, allow you to use it for X amount of time before returning it to your smart pod where your transaction will end with the autonomous car picking up the item for the next person to use.
    • People will save money on the opportunity cost of buying the good and the cost of storing it
  • This works for a power drill but there will always be infrequently used items that won’t get shared
    • Your toothbrush sits idle 23 hours and 56 minutes a day but the transaction costs would still be too high to monetize this excess capacity
Platforms Are the Key to the “Sharing Revolution”
  • 3 Problems must be solved:
    • Triangulation: People need to be able to find each other. Person A has what Person B wants and Person B has what Person A wants.
    • Transfer: Successful delivery of the product
    • Trust: No fraud
  • As mentioned on the 13th episode of EconTalk by Chris Anderson of Wired Magazine, Sears was one of the original modern day platforms
  • Amazon is a platform: It brings together buy and sellers, handles all the transactions so the sellers get paid and provide trust via a great return policy and user reviews
  • Twice a year Sears use to release a 600 page catalogue where it featured products from Sears and, some products bought by Sears and ads for other products. Sears would lend credit to consumers to ensure sellers got paid, to provide trust.
  • “Amazon is the Sears Catalogue of the 21st century”
  • Platform based sharing could be powerful enough to reshape building design and draw more people to move into cities
  • Due to the density of cities, the speed at which users could share would be far superior to rural areas
User Reputations Enable Platforms
  • Most would agree they don’t hitchhike, and that sleeping at a strangers house is weird, but yet here we are doing both with Uber & Airbnb
  • All users on Uber and Airbnb have earned ratings, but they are siloed to each platform
  • There is a need for a new platform that allows for a universal reputation
  • The network effect of such a platform could lead to one company having a monopoly over user reputations so a blockchain solution should be created to prevent this
  • Having no reputation is barrier to entry within the sharing economy.
  • “You become your own brand” – Russ Roberts. We currently see this transpire on LinkedIn.
It’s Not All About Money
  • GoFundme is platform that enables people to share in the cost of something, but often receive nothing other than a feeling of doing a good deed
  • Wikipedia is a platform where users suffer no transaction costs, but also gain no monetary reward – they are rewarded with honor & pride. The community bans back actors (enabling trust).
  • People can offer their couches online for ‘couch surfers’ and often expect nothing in return even though a gift is customary
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