by Kripa Jalan
Did you ever hesitate to take an UberPool or questioned the safety factor before booking an Airbnb? Have you ever stayed in an Airbnb or used an UberPool and tried to understand why these concepts exist, how they started and what they are built on? Have you tried to understand what they stem from and the implications that they have on our society?
The concept of ‘sharing rides’ or ‘sharing a house’ stems from the fact that consumers have a sense of trust within the company and the people they would interact with in this process. A major part of the economy is built on trust. From digital payments – an integral part of today’s economy – to investments in different companies, it is all built on trust. Various companies take advantage of the trust their consumers have in the company, to build and develop stronger models for their business. Uber and Airbnb are just a few companies that have played to the advantages of this trust factor, resulting in marvellous growth and outcomes.
The positive relation between trust and macroeconomic growth is quite evident. It is seen that countries where governments, companies and other institutions have a higher level of trust factor, tend to show a stronger per capita real GDP growth for the same. One meta-analysis of economic literature shows that when the share of trusting people within a country experiences about a 10 percent point increase, the annual per capita real GDP should increase by around 0.5%.
To increase per capita GDP growth from a supply side perspective, there are two major ways of doing the same: one is by increasing business investment and the other is by increasing the productivity on a whole and trust affects both of them. A rise in levels of trust in the company, business or any other institution not only increases the business investments, but also affects productivity levels through higher quality investments, organizational improvements, human capital accumulation and internationalisation.
To begin with UberPool’s success story and why Uber pool began in the first place; there were serious economic implications and the opportunity cost was extremely high. To give a rough background, in the US Uber would waste around 7 billion man/woman’s productive work hours, sitting in traffic in just a year. Approximately 160 billion dollars worth of productivity was lost in traffic and in regards to the climate, around 20% of Ubers carbon footprint was swept in the air by the cars. According to Travis Kalanick that was only about 4% of the problem since if someone owns a car about 96% of the time the car is sitting idle. Land as a resource was also getting wasted since 30% of land was used to store vehicles.
Major big cities face the problem of mass transit where irrespective of good infrastructure in terms of transport, there still arose a problem where citizens have to use the road. In a city like New York City, having one of the most sophisticated transport networks in the world, still around 2.5 million cars are on their roads almost everyday. This arises due to the fact that transit has not figured out how to reach every single person’s doorstep efficiently.
After a couple of years of uber being present in the market, what Uber noticed in their consumers was that essentially many people would be booking an uber from the same place at the same time to the same place. Well, of course the idea of combining two rides came to mind. Several questions regarding if people would be willing to share rides, if they would trust the ride or not and if the trade off between it being cheap and enough and people not willing to share rides would favor the cheaper alternative. Combining rides could cut costs upto 50% and of course less cars would be used.
Uber took the risk of setting up UberPool on the basis of trust and within 8 months of UberPool launching, 7.9 million miles had been saved off the road and 1.4 thousand metric tons of carbon dioxide emissions had been taken out of the air, and that too in just one city, Los Angeles. Evidently this saves resources, productive time and has a great opportunity cost, and Uber based their model on trust.
As seen by the model that Uber used for UberPool, an increase in trust did lead to better productivity standards for the company and their employees. On a whole, with Uber’s success stories, long term investments in the company have also increased. Just like Uber there are several other companies and businesses that base their models on trust, Airbnb and Lyft just being a couple to name. This affects output and income levels thereby affecting the GDP growth rates of a country. Trust is an important factor in today’s economy since a major part of the economy is based on the same.
So next time you take a shared taxi or you book an Airbnb you’ll know the economic implications of doing so!
References:
Kalanick, T. (2016, February 22). Uber’s Plan to get more people into fewer cars. Ted.com https://www.ted.com/talks/travis_kalanick_uber_s_plan_to_get_more_people_into_fewer_cars/transcript?referrer=playlist-the_economy_of_trust&language=en#t-1139646
Stan, A. (2016, April 25). The future is the trust economy. The Crunch. https://techcrunch.com/2016/04/24/the-future-is-the-trust-economy/
Kalish, I., Wolf, M., & Holdowsky, J. (2021, May 20). The link between trust and economic prosperity. Deloitte. https://www2.deloitte.com/us/en/insights/economy/connecting-trust-and-economic-growth.html
Mittendorf, C. (2017). The Implications of Trust in the Sharing Economy – An Empirical Analysis of Uber. htps://core.ac.uk/download/pdf/77240169.pdf
Economics Declassified 