AirBnB: Cost and Choice.

AirBnB is an online service that matches travelers with property owners. The two can then negotiate for a night's stay. Yesterday, I scanned past a comment somewhere that warned of thinking that this idea is all that much of a boon. After all, the opportunity cost of peer-to-peer hosting is that established hotels lose out on business. The comment surprised me, coming as it did from an economist I respect quite a bit.

Consider the purpose of production in very broad terms. The means of production exist to serve the ends of human wants. Here, we've got a matching problem. Under the technology of its time, hotels were a way to match the itinerant with a soft pillow, a roof, and a mass-produced flea market painting. Before that, medieval codes of hospitality had to suffice. Before that, you slept in your caravan or more likely never traveled at all. And it's BATNA all the way back. I've slept under the stars before, and you probably have too. So one way of looking at it is that AirBnB is just another technology that fulfills human wants. And it's not like access to the impersonal market is barred, so folks are unlikely to find systematic exploitation in the business model.

It seems then that most of what the AirBnB service does is permit transfers from firms to property owners. It injects substitutes into the market, making overnight stay services more competitive, more elastic, and therefore closer to marginal cost. Hello people, that's economic efficiency. AirBnB is a high-volume, low-overhead mancgere.

From there, it's a matter of comparison. Compare the reliability of reputational capital between private homeowners and hotels. Compare arguments about economies of scale when it comes to housekeeping and laundry services, or about the lumpiness of opportunity cost. It's easy enough for modeling purposes to assume that people value their time equal to their wage rate, but that's just an assumption. There's no a priori reason to confidently assert there's a linear relationship there, at least much beyond the bounds of a normal workday.

The residual euvoluntarity is a curious question. City elites seem to be comfortable protecting the rents of hoteliers (no surprise there, PAA), and you might see how this service could grate against conventional capacities of trade and ownership and trip over the regret condition. Despite this, I have a hunch that the democratizing of overnight stays is a power-to-the-people sort of thing and I expect that if not this particular service necessarily, then some clone of it will end up the new normal with a bit of spit and polish.

Bet on it.

Swapping couches

Whether or not the internet marks the end of selfishness (see below), it certainly does allow for new kinds of exchange.

For example, Couch Surfing, where people opt into a global network and agree to let strangers sleep on their couch for a night in exchange for the right to sleep on other strangers' couches all over the world.

Some might look at this as a better use of available resources, but I think that misses the point a bit. It seems unlikely that a website that allowed people to rent out their couches for $5 a night would be far less popular.

Like organ donations and amateur athletics, hospitality is a sphere in which people feel uncomfortable involving money, even if exchanges involving money would improve overall welfare. Because couch surfing is potentially quite dangerous, though, this anti-money impluse might make a lot of sense; people are more willing to trust a stranger who is willing to trust strangers than a stranger with $5.

Charity as a substitute for reputation: evidence from an online marketplace, Daniel W. Elfenbien, Ray Fisman, Brian McManus, Review of Economic Studies, forthcoming.

Consumers respond positively to products tied to charity, particularly from sellers that

are relatively new and hence have limited alternative means for assuring quality. We

establish this result using data from a diverse group of eBay sellers who “experiment”

with charity by varying the presence of a donation in a set of otherwise matched product

listings. Most of charity’s benefits accrue to sellers without extensive eBay histories.

Consistent with charity serving as a quality signal, we find fewer customer complaints

among charity-intensive sellers.

(Thanks to Peter Jaworski for couch surfing)