Empirical Research

Trust beats punishment: How to improve the sharing economy

20/05/2021

The sharing economy is turning the corporate world upside down. More and more companies and organizations are focusing on services and goods that are used collectively. To get customers involved in such collaborative business models, they need to trust each other and the company that provides the service. After all, the sharing economy is associated with some inherent risks: 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 team of researchers from WU (Vienna University of Economics and Business), Vrije Universiteit Amsterdam, and the University of Cologne have investigated the role that different forms of regulation play in the sharing economy and its communities.

In general, companies operating in the sharing economy tend to use forms of harsh regulation, often based on different types of penalties or punishment. But the researchers have shown that soft, supportive regulation is more effective in creating trust and ensuring cooperative behavior. This is one of the key findings of the research project  Collaborative Consumption – Trust, Power and Cooperation.

Eva Hofmann from WU’s Competence Center for Empirical Research Methods, the head of the project, sums up the findings: “We have been able to show that a combination of high supportive regulation and low 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.”

The researchers distinguish between soft (supportive) regulation and harsh (strict) regulation. Soft regulation involves implicit forms of control, for example providing information to the members of the community. Harsh regulation is characterized by strict rules. Control is achieved through sanctions.

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. Reason-based trust develops based on rational and conscious cognitive processes. Hierarchically speaking, these two types of trust can have a horizontal and a vertical dimension: Horizontal trust means trust in the community, while vertical trust is trust placed in higher hierarchical levels, for example the sharing economy organization managing the services.

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.

Publications

The four-year research project Collaborative Consumption – Trust, Power and Cooperation concluded on April 30, 2021. It was supported by the Austrian Science Fund (FWF). The studies and papers produced as part of the project are available under https://www.wu.ac.at/collaborative-consumption/publikationen

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