Investing What Is the Sharing Economy? By Staff Author Updated on November 10, 2021 Reviewed by Akhilesh Ganti In This Article View All In This Article Definition of the Sharing Economy How the Sharing Economy Works Examples of the Sharing Economy Pros and Cons of the Sharing Economy Photo: vgajic / Getty Images Definition A sharing economy is an economic model that allows consumers to share in the creation or use of products, goods, and services. This sharing often takes place across digital platforms, such as online communities or apps. Key Takeaways The sharing economy involves the sharing of resources, often through online or mobile platforms.Key examples of the sharing economy include ride-sharing, short-term rentals, coworking, and grocery delivery services.Performing gig work can raise concerns over things like safety and privacy, as well as taxation and how to report income. Definition of the Sharing Economy What exactly is the sharing economy? Here's one definition: "A shared economy model allows consumers to share creation, production, distribution, trade, and consumption of goods and services." The IRS views the sharing economy through the lens of gig work. Using the terms “gig economy” and “sharing economy” interchangeably, the IRS defines both as "activity where people earn income providing on-demand work, services, or goods," often through a website or app. According to the IRS, gig work includes: Driving for a ridesharing serviceRenting out propertyRunning errands or completing short tasksSelling things onlineProviding creative or freelance services Note Income earned from gig work is taxable and must be reported as such on your tax return. Alternate names: Gig economy, shared economy, peer economy, shareconomy, collaborative economy, collaborative consumption How the Sharing Economy Works In a broad sense, the sharing economy works through mutual cooperation. Digital platforms such as websites or apps make it possible for people to connect with one another to share services or goods. For example, Uber is one of the best-known examples of a sharing economy model at work. A rider opens the Uber app and enters their destination. That rider is matched with an Uber driver, an independent contractor or gig worker who drives the rider to their destination. In exchange for using their personal vehicle and their time, the driver collects a base fare from Uber and could receive a tip from the rider. The rider, meanwhile, benefits from being able to reach their destination by sharing someone else's vehicle. Because the sharing economy spans so many activities, regulating it at a federal level has been difficult. Some of the key issues raised by state and federal regulators and lawmakers center on: The safety of people who participate in sharing economy activities, such as rideshare drivers and passengers. Labor laws and the classification of gig workers. Taxation of gig workers and companies that contract with them. Data collection and privacy of people who use sharing economy apps or platforms. Discriminatory practices Two of the biggest segments of the sharing economy to come under regulatory scrutiny are ride-sharing and vacation rentals. Uber and Lyft fought extensively against regulations that would have required them to classify drivers as employees. Airbnb hosts, meanwhile, have to navigate local rules and regulations about short-term rentals. Note Critics of the proposed PRO Act, which would substantially change labor laws, have argued that it's a direct threat to the sharing economy. Examples of the Sharing Economy As mentioned, ride-sharing and short-term home rentals are two of the most visible examples of the sharing economy. Airbnb, for example, allows homeowners to rent out part or all of their homes to individuals for short periods of time. Here's how it works. Airbnb provides an online platform where homeowners with extra space can connect with people who want to rent it. When someone rents a room or a full home, they pay the homeowner, and Airbnb collects a fee for its service in facilitating the transaction. Other vacation rental platforms such as Homeaway and Booking.com work similarly. Other sharing economy examples include: Workspace sharing, like the kind offered by Wework Reselling via apps or websites, like eBay or LetGo Crowdfunding sites, like GoFundMe Peer-to-peer lending sites, like Prosper or LendingClub Equipment rental apps, like Sparetoolz Clothing rental services, like Rent the Runway or Tulerie Delivery services, like DoorDash or Seamless Grocery shopping and delivery services, like Instacart or Postmates Note While sharing economy apps can provide convenient access to services or goods, consumers may pay fees to use them. Pros and Cons of the Sharing Economy The sharing economy offers both advantages and disadvantages for consumers and for gig workers. Here's a look at the pros and cons of a shared economic model. Pros Potentially lower prices for goods and services Gig work can provide extra income Increased access to goods and services Cons Safety concerns for both workers and customers Lack of regulation can be problematic Data and privacy risks may exist Pros Explained Potentially lower prices for goods and services: Sharing resources can potentially translate to lower costs for consumers. For example, spending $20 each week on shared rides could be less expensive than owning, insuring, and maintaining a vehicle. Gig work can provide extra income: One in three Americans has at least one side hustle, and many of them work in the sharing economy. Gig work can provide much-needed extra income if you experience a pay cut or if stagnating wages make it hard for you to keep up with a rising cost of living. Increased access to goods and services: The sharing economy can make it easier to obtain goods or services. For example, if you spent most of 2020 staying home except for essential outings, you might have turned to a grocery delivery service to keep your pantry stocked. That kind of convenience is a hallmark of the sharing economy. Cons Explained Safety concerns for both workers and customers: Performing gig work or hiring a gig worker can pose safety risks. An Uber safety report released in 2019, for instance, revealed nearly 6,000 sexual assaults and 19 deaths involving drivers and riders during 2017 and 2018. Lack of regulation can be problematic: Changing regulations can bring uncertainty for both gig workers and consumers who use sharing economy platforms. If you rent out a room on Airbnb, for example, an unexpected change to local laws could curb your earning potential. Data and privacy risks may exist: Cybersecurity is also a concern for people who use sharing economy platforms. Sharing information with an app can be risky if it's not properly encrypted. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Washington State University. "How the Sharing Economy Is Transforming Business." Accessed June 16, 2021. Internal Revenue Service. "Gig Economy Tax Center." Accessed June 16, 2021. American Bar Association. "Regulatory Challenges in the Sharing Economy." Accessed June 16, 2021. Airbnb. "What Hosting Regulations Apply to You?" Accessed June 16, 2021. Zapier. "One in Three Americans Have a Side Hustle." Accessed June 16, 2021. Uber. "Uber U.S. Safety Report." Accessed June 16, 2021.