The Tragedy of Your Upstairs Neighbors: When Is the Home-Sharing Externality Internalized?

37 Pages Posted: 31 May 2014 Last revised: 5 Apr 2017

Apostolos Filippas

New York University (NYU) - Department of Information, Operations, and Management Sciences

John J. Horton

New York University (NYU) - Department of Information, Operations, and Management Sciences

Date Written: April 4, 2017

Abstract

A common critique of home-sharing platforms is that they enable hosts to impose costs on their neighbors. We consider four potential public policy responses that differ in whether the decision right to host is allocated to: (1) individual tenants, (2) building owners, (3) cities, and (4) a social planner. We find that (2) and (4) are equivalent, with (3) leading to too little hosting, and (1) to too much hosting. The efficiency of (2) depends on building owners being indifferent between allowing and banning home-sharing in their buildings. To assess this “no policy arbitrage” prediction, we constructed a dataset of NYC rental apartments listings. Although we do not observe building home-sharing policies, there are several “policy” attributes captured in the data, such as whether buildings allow subletting. Consistent with our prediction, we find that policy choices have no detectable effect on rental prices. Despite the attractiveness of the equilibrium of policy (2), tenants must “sort” across buildings, potentially at substantial cost. We explore this sorting with an agent-based model, and show how individual preferences and moving costs affect the equilibrium.

Suggested Citation

Filippas, Apostolos and Horton, John J., The Tragedy of Your Upstairs Neighbors: When Is the Home-Sharing Externality Internalized? (April 4, 2017). Available at SSRN: https://ssrn.com/abstract=2443343 or http://dx.doi.org/10.2139/ssrn.2443343

Apostolos Filippas

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States

John J. Horton (Contact Author)

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States
6175952437 (Phone)

HOME PAGE: http://john-joseph-horton.com

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