Indirect Reciprocity in the Sharing Economy

Abstract: The rapid growth of the sharing economy and its many societal benefits highlight the importance of understanding how these marketplaces sustain themselves. The reason for contributing to the sharing communities with homes, cars and other valuable assets appear less clear in platforms where monetary incentives are smaller. Further, many sharing economy marketplaces are characterised by a higher level of risk due to valuable assets, meetings with strangers and the fact that the risk is borne by the peers in the platforms instead of what is usually the firm. In this paper, we investigate whether positive indirect reciprocity, meaning that people respond to other's good behaviour by behaving good themselves, is affected by risk in a sharing situation. We conduct an experiment where we investigate differences in the level of sharing in the presence of history - how other individuals have behaved - and risk. The results show that making the history of other's good behaviour known has no effect on the level of sharing in the non-risk setting, but it increases the level of sharing in a setting that involves risk significantly. This implicates that indirect reciprocity is higher when people are subject to more risk compared to traditional marketplaces. By this, we contribute to a more comprehensive understanding of what behavioural mechanisms facilitate sharing in the risky setting of the sharing economy, which is important in order for decision makers to enable sustainable sharing communities. Specifically, transparency and ratings in the platforms should be encouraged.