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Did you know that soft regulation can increase cooperation by users in the Sharing Economy?

January 2023

Sharing Economy business is rapidly growing – the joint usage of resources such as cars, apartments, tools etc. increases and is organised through firms, peer-to-peer platforms, or communities. The joint usage of resources by several persons puts central questions of cooperation in the focus. For example, when several persons use the same car, rules about cleaning and refuelling before the handover are essential to provide a pleasant driving experience for the next driver. How can compliance with rules and therefore cooperative behaviour be ensured?

Regulation of behaviour can be performed in different ways – through harsh or soft regulation. Harsh regulation tries to reach rule-compliant behaviour through force (e.g., by punishment for rule breaking). Soft regulation tries to reach rule-compliant behaviour through persuasion (e.g., by being a role model, providing rationales for rules or by allowing participation in setting the rules). Which of these ways do Sharing Economy organisations apply, and how do these ways influence users?

These questions were researched in a project funded by the Austrian science fund FWF, led by Eva Hofmann, WU Vienna University of Economics and Business. In a joint article with ISS researcher Erik Hoelzl, first the internet presence of several Sharing Economy organisations was analysed for signs of harsh and soft regulation. Results showed that most organisations – at least on their webpages – rely on harsh regulation (e.g., by highlighting financial fines or threatening with exclusion from the platform). In contrast, focus groups showed that users criticize this orientation, and even see it as counterproductive in community-based sharing. Two further experiments also showed that highlighting harsh regulation had no impact on cooperation, whereas highlighting soft regulation contributed to cooperation. Results suggest that by increasing their use of soft regulation, firms and other organisations in the Sharing Economy could reach more cooperation from their users and consequently a positive consumption experience for all users.