Sharing Profits in the Sharing Economy

22 Pages Posted: 7 Nov 2018 Last revised: 2 Mar 2020

See all articles by Paolo Guasoni

Paolo Guasoni

Dublin City University - School of Mathematical Sciences; Boston University - Department of Mathematics and Statistics

Gu Wang

Worcester Polytechnic Institute

Date Written: November 4, 2018

Abstract

A monopolist platform (the principal) shares profits with a population of affiliates (the agents), heterogeneous in skill, by offering them a common nonlinear contract contingent on individual revenue. The principal cannot discriminate across individual skill, but knows its distribution and aims at maximizing profits. This paper identifies the optimal contract, its implied profits, and agents' effort as the unique solution to an equation depending on skill distribution and agents' costs of effort. If skill is Pareto-distributed and agents' costs include linear and power components, closed-form solutions highlight two regimes: If linear costs are low, the principal's share of revenues is insensitive to skill distribution, and decreases as agents' costs increase. If linear costs are high, the principal's share is insensitive to the agents' costs and increases as inequality in skill increases.

Keywords: optimal taxation, principal-agent, heterogeneous skill

JEL Classification: H21

Suggested Citation

Guasoni, Paolo and Wang, Gu, Sharing Profits in the Sharing Economy (November 4, 2018). Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 20-3, Available at SSRN: https://ssrn.com/abstract=3278274 or http://dx.doi.org/10.2139/ssrn.3278274

Paolo Guasoni (Contact Author)

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

HOME PAGE: http://www.guasoni.com

Boston University - Department of Mathematics and Statistics ( email )

Boston, MA 02215
United States

Gu Wang

Worcester Polytechnic Institute ( email )

100 Institute Road
Worcester, MA 01609
United States

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