You get what you give: theory and evidence of reciprocity in the sharing economy

We develop an analytical framework of peer interaction in the sharing economy that incorporates reciprocity, the tendency to increase (decrease) effort in response to others’ increased (decreased) effort. In our model, buyers (sellers) can induce sellers (buyers) to exert more effort by behaving well themselves. We demonstrate that this joint increased effort can improve the utility of both parties and influence the market equilibrium. We also show that bilateral reputation systems, which allow both buyers and sellers to review each other, are more responsive to reciprocity than unilateral reputation systems. By rewarding reciprocal behavior, bilateral reputation systems generate trust among strangers and informally regulate their behavior. We test the predictions of our model using data from Airbnb, a popular peer-to-peer accommodation platform. We show that Airbnb hosts that are more reciprocal receive higher ratings and that higher rated hosts can increase their prices. Therefore, reciprocity affects equilibrium prices on Airbnb through its impact on ratings, as predicted by our analytical framework.