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Sunday 13 November 2011

Economics of Sharing

A large quantity of university students live in shared accommodations. They pay the rent independently and usually share the bills (which usually include electricity, gas, garbage collection or Internet access fees) with their flatmates. As a sharer of the bills, will you tend to consume more goods and services in the bill list or less (which, of course, do not reach the peak of the marginal utility curve) since you only need to pay a portion (probably not a large portion) of the cost.

It seems a rational decision to consume more because you own the whole utility gained from the consumption but only need to pay part of it. Suppose that you have 3 flatmates and the price of electricity is 1 euro per KWh. If you use the electrical appliance, which consumes 1 KWh of electricity, you get the benefit which is worth 1 euro, but you only need to pay 0.25 euro for it. Does it mean you earn 0.75 in this transaction? But we should consider the lost which may issue from the increased consumption by your flatmates due to the same consideration (do not forget you are the loser in their winning transactions based on the same theory). 

This is the economics of sharing. The key feature of the phenomena is that a portion of the cost of your consumption is paid the others, and you pay for a portion of the cost of their consumption. They cannot control the cost they pay for you and analogously, you cannot control the cost you pay for them. This is an interesting issue needs further thinking. Maybe we can get some inspirations from the game theory.

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