How should cities regulate the sharing economy in the future? While today’s relationship between local government and sharing platforms remains largely adversarial, with the help of agglomeration economics and public choice tools, Rauch and Schleicher forecast more collaborative days ahead.

In this article, the authors examine how city and state governments might alter their regulatory approach as sharing economy firms transform from disruptive upstarts to permanent players in key urban industries, including transportation and hospitality. Ultimately, Rauch and Schleicher suggest that cities should de-emphasize current priorities of consumer and incumbent protectionism, while firms should focus on seeking rents and contracts with local government over engaging exclusively in defense against local regulation.

To those ends, the authors suggest that local and state government will adopt a combination of the following policies in the medium term: 1) subsidizing sharing firms to encourage expansion of services that produce public good; 2) harnessing sharing firms as a means to redistribute income; and 3) contracting with sharing firms to provide traditional government services.