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Trust Beats Punishment: How to Improve the Sharing Economy

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Soft and supportive regulation is more effective in creating trust and ensuring cooperative behaviour, according to new research by Vienna University of Economics and Business (WU).

A team of researchers from WU, 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.

Currently, most companies operating in the sharing economy tend to use forms of harsh regulations, often based on different types of penalties or punishment.

This is because 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.

However, their 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.

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 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.

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