According to Le Soleil, Québec is about to make regulatory peace with Airbnb. The government, according to Le Soleil‘s source, has come to the conclusion that Airbnb is a “wonderful platform” (translation mine), and that trying to outlaw it is not a good idea. Instead, those who use it to rent out apartments on a regular basis will be subject to the same tax and regulatory burdens as hoteliers, while occasional users, it seems, will be left to their own devices.

Details of the plan are still sketchy ― we only have a leak, for now, not a bill ― but it seems to be both a step forward and a missed opportunity. That Québec will no longer claim that it is entitled to simply to stop consensual transactions that do not harm third parties just because they sit uneasily with a one-size-fits all regulatory scheme is progress. As Richard Epstein recently wrote over the Hoover Institution’s Defining Ideas blog, “it is a hopeless task to apply traditional regulatory structures to modern arrangements, especially when they block the implementation of new business models.” It is good news that Québec has implicitly acknowledged this principle, at least in one instance.

However, as prof. Epstein also said ― and as I previously suggested in a post for the CBA National Magazine’s blog ― when faced with disruptive novel arrangements, we should take the opportunity to question whether the old regulatory strictures are necessary at all. On this score, the forthcoming regulations, which will apparently extend existing rules governing hotels to the apartments rented out through Airbnb, and emphasize the importance of inspections, do not seem at all promising. Are the rules and inspections intended to ensure the quality of rented accommodation and thus protect consumers still necessary?

One of the sharing economy’s key innovations is the decentralization of quality control enabled by user ratings and reviews. As co-blogger Stephen Tapp has observed,” real-time feedback by both parties, which over repeated transactions, develops reputations and engenders trust” is one of the “[t]wo crucial components [that] make these markets work.” Indeed, it arguably makes these markets work better than the traditional, centrally regulated, sort. The distributed quality control mechanisms are probably more informative and transparent than the mere fact of an establishment’s not having been closed down by the regulators. Québec’s forthcoming regulations, it seem, will fail to take this innovation into account. Instead of thinking of a way to help its hospitality industry into the 21st century, the province found a way to trap the sharing economy in the 20th.

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The news from Québec’s other front in the sharing economy wars is not good either, as the province’s confrontation with Uber continues unabated. Yet for all its belligerent reputation, Uber has in the past indicated that it would welcome (some) recognition and regulation. The provincial government, as well as the city administration of Montreal, seems uninterested in the sort of compromise that has been reached in Airbnb’s case.

What might account for the difference? After all, Airbnb and Uber are, in terms of technology and business model, similar beasts. The dissimilarity between the two big names of the sharing economy might have to do with the markets the two are trying to enter. The hospitality market is taxed and regulated, as most are. But it is not cartelized. Competition is the norm, and the entry of new competitors not earth-shattering event. By contrast, the taxi market is the preserve of a state-backed cartel. There is no competition there. Uber is not merely one more player who can, with some care, be domesticated ― on the contrary, it cannot be allowed to enter the market, such as it is, without abandoning the very principles on which that market operates.

Whether the key to the puzzle is that the government itself is used to regulating competition in the hospitality market, but only to stifling it in the case of taxis, or the true reason is that hoteliers, being used to competing, put up less of a fight against Airbnb than taxi companies for whom Uber is the end of the world as they know it, I cannot tell. Either way, the government is not responding to the challenges of innovation, but instead allowing its positions to be controlled by the regulatory choices made by its long-gone predecessors. This too is a missed opportunity to step, at last, into the 21st century.

Leonid Sirota
Leonid Sirota teaches constitutional law at the Auckland University of Technology Law School. He is a graduate of the Faculty of Law, McGill University and the New York University School of Law. His main interests are Canadian constitutional law, other areas of public law and legal theory.

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