Trust beats punishment: Soft regulation may be more effective in sharing economy
Soft and supportive regulation is more effective in creating trust and ensuring cooperative behaviour, according to new research shared with City PM this evening.
Currently, most companies operating in the sharing economy tend to use forms of harsh regulations, often based on different types of penalties or punishment, a team of researchers from the Vienna University of Economics and Business (WU), Vrije Universiteit Amsterdam and the University of Cologne found.
They looked at the role that different forms of regulation play in the sharing economy and its communities.
Supportive rules
The study found that soft, supportive regulation, which involves implicit forms of control – for example providing information to members of the community – is more effective at creating trust and cooperation.
Instead, companies opt for harsh, stringent rules because the sharing economy is associated with some inherent risks, the researchers pointed out.
For example, people who borrowed a shared car may return it covered in dirt, someone may trash a shared holiday home during their visit, or someone may flood the community garden.
“A combination of supportive regulation and less harsh regulation is particularly effective in creating higher trust. Under these conditions, people are much more likely to accept the risks associated with participating in a sharing community,” said Eva Hofmann from WU’s Competence Center for Empirical Research Methods, the head of the project.
The researchers define trust as the willingness of community members to take risks or to join a community in the first place. In addition to implicit trust, which develops automatically and unconsciously, the sharing economy depends to a large extent on reason-based trust which is developed based on rational and cognitive processes.
A high degree of soft, supportive regulation increases people’s trust in sharing communities. This trust, in turn, makes them more likely to accept the risks associated with the sharing economy.