Monthly Archives: May 2014

Does Airbnb hosting beggar your neighbor?

tl; dr version: I wrote  a short paper on one of the policy issues raised by Airbnb—namely does hosting on Airbnb impost a cost on neighbors that make Airbnb as a development socially inefficient. My answer is no.

Yesterday I read a column in the Guardian by Dean Baker titled “Don’t buy the ‘sharing economy’ hype: Airbnb and Uber are facilitating rip-offs.” The title pretty much sums up his views. I did not think very much of the policy arguments (one of the key points is that they hurt local tax revenue, which seems eminently fixable and not the most important concern anyway) save for one: the notion that Airbnb hosts impose a negative externality on their fellow apartment renters. This seems plausible and it is exactly the kind of market failure governments are often needed to remedy.

I have heard many New Yorkers say something to this effect “I don’t want to live next to random people coming  and going.” And while this main costs of hosting bad guests falls on the host—see the New York Post article (of course)  “Airbnb renter returns to ‘overweight orgy’“—presumably neighbors also bear some costs. The natural policy question is whether these negative externalities get internalized.

Presumably individual tenants considering being Airbnb hosts don’t fully consider the costs on their neighbors, but the decision to list is not wholly up to them: landlords certainly have some say and presumably have incentives to both (a) let renters earn extra revenue, as they can capture some it through rents and (b) minimize the costs that these quasi-sub-letters have on other tenants (for the same rent-related reason).

I tried thinking through these issues and wrote a little paper that sits halfway between an academic paper and blog post. The main conclusion I draw is that if tenants can sort across apartments based on the landlords Airbnb-hosting policy, the negative externality of hosting will be internalized. In other words, there will not be “too much” Airbnb hosting.

See the paper for the details, but the basic idea is that when the rental market is in equilibrium, tenants have to be indifferent between apartment buildings that allow Airbnb hosting and those that do not, which means that the benefits they would get from being an Airbnb host equal the costs from everyone else in the apartment being Airbnb hosts. And when this condition is met, private benefits equal social costs, which is what one needs for the externality to be internalized. Obviously this is a pretty stylized argument, but hopefully it can be a starting point for thinking more seriously about the policy implications of Airbnb.