Financing the Gig Economy
81 Pages Posted: 1 Mar 2021
Date Written: December 1, 2019
In contrast to traditional forms of production, gig economy workers provide their own physical capital. This organization of production creates a tradeoff: On one hand, households can utilize assets for both durable consumption and production. On the other hand, it is often difficult for households to obtain financing. In the context of ride share, a difference-in-difference analysis around ride share entry shows the dual asset use benefit leads households to purchase more cars, increase utilization, and obtain employment, but financial constraints dampen these effects. I quantify this tradeoff with a structural model featuring alternate forms of production and costly finance. The estimated model shows that relative to traditional taxi firms with otherwise identical regulation and technology, gig economy production increases ride quantities by 20%, decreases prices by 30\%, and increases annual welfare by $5 billion. However, the gig economy is uniquely sensitive to household borrowing constraints on the extensive margin: When finance is unavailable to low-income households, these gains evaporate. In contrast, the gig economy is less sensitive to increases in interest rates on the intensive margin: Unlike traditional firms, gig economy production can shift to wealthier households that do not require financing.
Keywords: Gig economy, consumer finance, household finance
JEL Classification: G30, L23, L91, D13
Suggested Citation: Suggested Citation