1.1 Mutual Betterment as the Criterion of Legitimacy: Buchanan’s Social Contracts Theory

In “The Limits of Liberty,” James M. Buchanan (Reference Buchanan1975: xv) extended Hobbes’s classical social contracts approach. Just like the Hobbesian line of thought can be used to derive normative criteria for specifying whether governmental institutions are legitimate, Buchanan argues that it can also be used to derive (and further improve) normative criteria for specifying whether governmental functions are legitimate. As he was interested in a liberal justification of the welfare state and its use of mandatory taxation for providing public goods, Buchanan’s idea was to extend the legitimacy of the classical (constitutional) social contract to the legitimacy of a modern (postconstitutional) social contract. Buchanan thus differentiates two constitutional contracts and two peaceful social orders (Table 1, left column).

Table 1: The Social Contracts Perspective of Rules in Societies and Rules in Sharing Platforms

First, in the ex ante state of anarchy (“natural distribution”), violent conflict systematically arises over resources as individuals lack a joint rule framework of rights to coordinate their interactions peacefully (Buchanan, Reference Buchanan1975: 23–28). In the state of nature, while each person is putting much effort into securing and defending a small share of freely available resources, many other resources of society are wasted or remain underutilized. This Hobbesian anarchy is unproductive and associated with minimal levels of social welfare. As Hobbes (Reference Hobbes1651/1998: 84) described, the state of nature is a war of “every man, against every man” (“bellum omnium contra omnes”; Hobbes, Reference Hobbes1642/1839: 148) under which life is “solitary, poor, nasty, brutish, and short” (Hobbes, Reference Hobbes1651/1998: part I, chapter 13).

Second, members of society negotiate a constitutional contract to mutually agree on a basic structure of secure property rights to end endemic conflict and anarchy. Citizens agree to form the state as an organization that implements agreed-upon rules to enforce property rights and private contracting, including the law, the courts, and the police. The coercive powers of the state are viewed as legitimate if they overcome Hobbesian anarchy (Buchanan, Reference Buchanan1975: 29; see also Munger, Reference Munger and Wagner2019: 41). The “paradox of being governed” (Buchanan, Reference Buchanan1975) is thus solved by the idea that coercive government is a legitimate form of collective self-regulation of the people being governed. The basic idea is that citizens agree to—and thereby legitimize—the “protective” state because it improves the basis for their cooperative efforts in producing and exchanging private goods that allow a relatively “commodious living” (Hobbes, Reference Hobbes1651/1998: part I, chapter 13).

Third, going beyond Hobbes, Buchanan argues that members of society can also negotiate a postconstitutional contract. Here free citizens approve of further coercive rules that help them manage free-rider problems in the provision of public goods, which may yield direct or indirect benefits, for example, via increasing efficiency in the production or exchange of private goods. Examples include the provision of public infrastructure, institutionalized credit markets, social insurance arrangements, and social policy in general (Buchanan, Reference Buchanan1975: 35–53). Citizens are interested in enlarging the government’s coercive powers if used as an instrument to collectively enhance their individual liberties, that is, if it proves useful to have government-supported institutions for improving their economic and otherwise private activities. In this regard, also the postconstitutional contract makes free citizens better off. Buchanan holds that citizens can agree to—and thereby legitimize—the “protective and productive” state because it further improves the basis for their cooperative efforts, especially by providing public goods.

In a nutshell, Buchanan’s normative research problem is to derive criteria for legitimizing the government functions of a modern state that provides law and order as well as further public goods, including welfare programs. His social contracts theory proceeds in two steps.

First, it analogizes the protective and productive state and argues that if one can agree to the protective state (brought about by a constitutional social contract), then one can also agree to the productive state and its welfare policies based on mandatory taxation (brought about by a postconstitutional social contract), because both social contracts follow the same logic of mutual betterment and hence voluntary agreement among reasonable citizens.

Second, Buchanan emphasizes another analogy. Because the legitimacy of the protective state rests on the criterion of general consent, it is possible to derive some constitutional limits that should be implemented in the constitutional contract, for example, basic human rights and basic procedures, such as division of powers, that are intended to guide a protective state to safeguard citizens against exploitative tyranny, thus creating trust in the constitutional contract. Following the same logic, it is possible to derive some democratic limits that should be implemented in the postconstitutional contract, for example, some property rights that should be protected by a productive state to safeguard citizens against exploitative taxation, thus creating trust in the postconstitutional contract. Again, Buchanan is analogizing both social contracts by asking, which constitutional provisions should be made to keep both social contracts in line with general agreement?

To avoid misunderstanding, it is important to note that this social contract theory aims at Pareto-superior rules. It does not require that not everyone will enjoy individual advantages in any isolated, single case. Rather, in a multilevel hierarchy of rules and meta rules, (post‑)constitutional rules are meant to be so abstract that they govern a sequence of many different future situations. The fact that rules cover a series of single events forces actors to focus their agreement or disagreement on average expected outcomes. This makes agreements about Pareto-superior rules (and the according outcome ranges that are to be expected on average) much more likely than agreements about the specific outcomes of single events (Brennan & Buchanan, Reference Brennan and Buchanan1985: 29–30; cf. also Hielscher et al., Reference Hielscher, Beckmann and Pies2014: 538–39).

1.2 The Legitimacy of Sharing-Platform Organizations

We apply the perspective Buchanan used to address the legitimacy of the modern state and transfer it to the sharing-economy debate. While Buchanan analogized the protective and productive state to identify legitimacy criteria for government functions, we analogize private ordering and public ordering to identify legitimacy criteria for judging the rule-setting function of sharing platforms.

As we will demonstrate, a social contracts perspective is relevant for the sharing economy, but differently so for the two dominant organizational forms found in today’s digital capitalism: cooperatives and commercial platforms (Sundararajan, Reference Sundararajan2016). For nonprofit cooperatives, establishing and executing the rules within the organization can be reconstructed as a “direct democracy” model along the lines of Buchanan’s thought experiment for how citizens negotiate (post-)constitutional contracts in society. Members of sharing cooperatives are directly involved in negotiating a constitutional and postconstitutional contract to mutually agree on a basic structure of sharing rights. In line with Buchanan (Reference Buchanan1975), this bottom-up decision-making process combined with the democratic control of management functions achieves a state of mutual betterment by limiting, directing, and thus legitimizing the coercion exercised by the executive function of cooperatives. The democratic nature of cooperatives has been noted much earlier by economists who viewed cooperatives as “democracies within the economy” (“Wirtschaftsdemokratie”; cf. Boettcher, Reference Boettcher1980; Bonus, Reference Bonus1986). However, transferring this win–win logic of legitimacy to commercials—the giants of the sharing economy, such as Airbnb, Uber, and Lyft—requires more effort, as we will argue next, following Hielscher et al.’s (Reference Hielscher, Beckmann and Pies2014) consent-based view of type II democracy. In doing so, we follow Buchanan’s argument in three steps. First, we investigate the similarities and differences between private ordering and public ordering. Second, we ask whether the commercial sharing economy’s constitutional and postconstitutional efforts provide the basis for mutual betterment and, third, whether some limits are provided to safeguard users from exploitation.

(1) In contrast to sharing cooperatives, commercial for-profit sharing-platform organizations exert coercion on behalf of sharing partners who initially have had no chance to directly participate in negotiating the platform rules at the time of their creation. While this is a notable difference, there are also structural similarities to Buchanan’s constitutional model of indirect, representative democracy (cf. Table 1).

First, sharing partners initially face a problem of institutional deficit. Sharing partners witness a situation of insecure sharing rights and thus high transaction costs, three of which are particularly relevant: a) confidence costs to close the trust gap between sharing partners, b) risk costs to interact with potentially “unpleasant” individuals, and c) search costs to match suitable sharing partners (Munger, Reference Munger2018). These three cost types add up to the total transaction costs of sharing (Munger, Reference Munger2018) and typically prevent mutually beneficial interactions. As a result, institutional deficits are inefficient in the same sense as is Hobbesian anarchy in Buchanan’s thought experiment.

Second, sharing-platform organizations fill the void. They provide rules that help establish an order of sharing (markets) (Hartl, Hofmann, & Kirchler, Reference Hartl, Hofmann and Kirchler2016; Reischauer & Mair, Reference Reischauer and Mair2018). These rules create new forms of property rights, including rules of appropriate behavior between sharing partners; monitoring and disclosure of rule violations through reciprocal reviews; and sometimes even the sanctioning of violations through platform surveillance, investigations, and account deactivations (cf. Marzen, Prum, & Aalberts, Reference Marzen, Prum and Aalberts2017; Reischauer & Mair, Reference Reischauer and Mair2018). These rules establish secure sharing rights, create trust, and reduce transaction costs to a point that institutional deficits can be overcome and a potential of benefits for all sharing partners can be realized (Barbe & Hussler, Reference Barbe and Hussler2019; Califf, Brooks, & Longstreet, Reference Califf, Brooks and Longstreet2020; Hartl et al., Reference Hartl, Hofmann and Kirchler2016; Reischauer & Mair, Reference Reischauer and Mair2018).

Third, sharing-platform organizations improve the performance of their rule-setting function by providing “club” goods that help sharing partners reap further benefits of their mutual interactions. In analogy to the state’s functions of providing national health and social security, some sharing initiatives have started to offer insurance schemes, credit lines, and infrastructure investments to improve and enhance exchange on sharing markets, thus aiming to enhance the use of hitherto underutilized resources (Sundararajan, Reference Sundararajan2016). While the constitutional contract provides the institutional setup for sharing markets, the postconstitutional contract encourages more productive interactions within this framework, providing even more mutual betterment for sharing partners.

A social contracts perspective of the sharing economy thus highlights two important aspects for the principled legitimacy of coercive rule-setting arrangements.

First, there are differences between commercial sharing platforms and democratic societies. Apart from the apparent fact that commercial platforms are business firms interested in private profits, whereas democratic states are public entities incentivized for and constitutionally committed to the common good, it is surely a meaningful difference that citizens can participate in postconstitutional decisions through elections, whereas sharing partners usually cannot participate in negotiating the postconstitutional contracts of commercials.

Second, it is not obvious whether these differences speak against or in favor of the legitimacy of the rule-setting function of commercial platforms. For example, the fact that sharing partners have largely no say in establishing the constitutional rules set up by commercial platforms is a structural analogy to young citizens being born into already-established states without having a say in the constitutional setup. Also, although commercial sharing-platform organizations do not allow sharing partners a say in the rule-setting process ex ante—that is, in determining the platform organization’s top management and board—and restrict their ability to vote on rules and rule reforms, they do allow some influence ex post. Sharing partners have a meaningful right to continue or end their membership with a particular sharing platform, and they can adjust the quantity of productive services offered, all of which allows sharing partners to exert indirect pressure on sharing-platform rule-setting. Also, note that the flexibility of membership is a meaningful difference to the nation-states’ restrictive policies of allowing foreigners to become citizens. The indirect influence sharing platforms provide is therefore similar to Hirschman’s (Reference Hirschman1970) “exit” strategy, which tends to be the primary feedback mechanism commercial sharing platforms use to organize consent top-down. This analogy tends to speak in favor of the a priori legitimacy of the rule-setting functions of commercial sharing platforms.

(2) However, the social contracts perspective in favor of rule legitimacy crucially depends on whether the “rules of the game” (Buchanan, Reference Buchanan1975) are capable of achieving a state of mutual betterment for all sharing partners. This includes the constitutional limits that safeguard against exploitation. So, how do commercial sharing platforms score on this criterion? To answer this question—first in an abstract sense, later more concretely—we need to compare the status quo ex ante with the status quo ex post as generated by the constitutional and postconstitutional rules established by sharing platforms.

For consumers, sharing-platform rules seem to provide novel opportunities for mutually beneficial exchange, opportunities that were absent before. Arguably, the rise of the sharing economy comes with a broader set of individual freedoms to choose not only among an increasing variety of goods and services (Koopman et al., Reference Koopman, Mitchell and Thierer2015) but also among rule-setting frameworks that allow individuals to subject themselves to one or the other set of constitutional arrangements. Pervasive public criticism notwithstanding, the available empirical evidence, for example, suggests that ride-sharing platforms provide customers with a more flexible and broader supply of transport services than the established license-based taxi dispatch system. Uber and Lyft offer extra capacity in metropolitan areas during peak times of demand, for example, during rain or snow (O’Reilly, Reference O’Reilly2017: 48-70). Also, as reported from New York City, Uber drivers seem to serve impoverished neighborhoods much more frequently than that city’s yellow cabs, which are known for shunning metropolitan areas like the Bronx and Brooklyn (Meyer, Reference Meyer2016). In developing countries, Uber has been successful in addressing insecurities that pervade local taxi markets, including (sexual) harassment and exploitation, violence, attempted robberies, or a low payment morale (Dreyer et al., Reference Dreyer, Lüdeke-Freund, Hamann and Faccer2017; Uzunca, Coen Rigtering, & Ozcan, Reference Uzunca, Coen Rigtering and Ozcan2018).

For service providers, sharing-platform rules seem to help individuals deliberately opt out of rigid employment relationships (Coase, Reference Coase1937: 403) and opt in to new forms of flexible, independent, and entrepreneurial work.Footnote ² As argued by Coase (Reference Coase1937: 390–92), individuals tend to accept dependent employment in organizational hierarchies if the transaction costs of selling their labor services via private contracting are comparatively higher. This explains why a reduction in such transaction costs leads to a surge in entrepreneurial activities. Although we are only witnessing the beginnings of this trend—and so it remains difficult to judge its impact—Coase’s argument nevertheless hints at revealed preferences: given both options, people may choose working as a private contractor because they regard this as advantageous in comparison to working as an employee within a company. To the extent that the sharing economy is beginning to reduce the transaction costs of private contracting, it may therefore relax the need to use hierarchies as a conduit for participating in markets (Peticca-Harris et al., Reference Peticca-Harris, deGama and Ravishankar2020; Hall & Krueger, Reference Hall and Krueger2018; for a critique, cf. Horan, Reference Horan2019).

(3) However, these opportunities for mutual betterment only provide legitimacy to the extent that such advantages can actually be appropriated by sharing partners. This systematically relies on the “(post-)constitutional limits” that allow sharing partners to influence sharing-platform rule-setting and thus prevent platforms from becoming leviathans with a dangerous potential to exploit sharing partners. Two (post-)constitutional rules are relevant here.

First, exit opportunities can limit the power of sharing platforms. Similar to federalist systems of political decision-making where citizens’ right of free movement—such as in the United States—can limit “tax-budgetary exploitation” of “local governmental units” by migration (Buchanan, Reference Buchanan1975: 131), the sharing partners’ right to switch platforms can limit discretionary rule-setting decisions against users in the sharing economy. The efficacy of exit, of course, is a function of competition. The more platforms compete for producers and consumers to satisfy their needs, the more efficacious will be the exit strategy or the strategy to withhold productive investments that can influence platform rule-setting. However, standard economics suggests that network economies possess positive scale effects that tend to favor large platforms at the expense of competition, leading to market power or even monopolies (Calo & Rosenblat, Reference Calo and Rosenblat2017; Katz, Reference Katz2019; Rosenblat & Stark, Reference Rosenblat and Stark2016). If present in the sharing economy, these properties would limit the efficacy of exit strategies and thus the influence of sharing partners on sharing-platform rule-setting functions. Network effects could then lead to exploitation (Chai & Scully, Reference Chai and Scully2019); ineffective implementation of rules of antidiscrimination, gender equality, and religious freedoms (Abrahao, Parigi, Gupta, & Karen, Reference Abrahao, Parigi, Gupta and Karen2017); or an infringement of platform social safety nets, at the expense of independent contractors who rely on the platform for making a living of sharing services (Ravenelle, Reference Ravenelle2017).

Second, if exit strategies are ineffective in reducing the market power of single sharing platform operators, participatory feedback mechanisms—along the lines of Hirschman’s “voice mechanisms”—such as complaint mechanisms or participation in rule-setting, would be feasible alternatives. There are two viable routes for implementing such mechanisms. First, they can be introduced through voluntary self-regulation by sharing platforms. Second, they can be established by public regulation. We further discuss and compare both options in section 3.3.

Summing up, a social contracts perspective suggests that the coercive rule-setting function may represent an agreeable consensus—and thus may be seen as legitimate—if these rules ensure that the sharing partners are better off compared to the status quo ex ante. Mutual betterment also requires (post-)constitutional limits of platform discretion to protect users against exploitation, in addition to exit or voice mechanisms. These measures constitute the analogy with Buchanan’s approach, who argued that the legitimacy of mutual betterment both in the protective and the productive state depends on effective constitutional limits for individuals to be protected from majority power (via basic human rights) and exploitative taxation (via property rights). So far, however, we have put forward the concept of mutual betterment only as an idea, highlighting its abstract potential and risks. What we need to do next is demonstrate that this idea can also become a valuable practice.

2.1 Ordo-Responsibility of Companies

A central contribution of the ordonomic approach of ordo-responsibility (Beckmann & Pies, Reference Beckmann, Pies, Conill, Lütge and Schönwälder-Kuntze2008) is the insight that companies are forgoing a potential of mutual betterment with stakeholders—and thus an opportunity to make profits—if they fail to address governance gaps. The ordonomic approach suggests conceptualizing these situations as social dilemmas in two different forms (Pies et al., Reference Pies, Hielscher and Beckmann2009), a one-sided and a many-sided social dilemma:

• • Although both social dilemmas are situations of collective self-damage, a many-sided social dilemma describes a general version of the famous prisoners’ dilemma (Luce & Raiffa, Reference Luce and Raiffa1957). This situation of multilateral exploitation allows for analyzing problems of collective action (Olson, Reference Olson1965) and collective irrationality (Bowles, Reference Bowles2009).

• • A one-sided social dilemma (Greif, Reference Greif2000; Kreps, Reference Kreps, Alt and Shepsle1990), in contrast, is a situation of collective self-damage stemming from unilateral opportunities of exploitation. The one-sided social dilemma supports analyzing holdup or exploitation problems stemming from asymmetric information, specific investments, or unilateral dependencies (Pies et al., Reference Pies, Hielscher and Beckmann2009).

To address situations of collective self-damage, the ordonomic approach recommends changing the “rules of the game” (Buchanan, Reference Buchanan1990) and their respective incentive properties. To overcome a many-sided social dilemma, a collective commitment by all actors is required, while in a one-sided social dilemma, an individual commitment of one actor suffices to realize opportunities for mutual betterment (Pies et al., Reference Pies, Hielscher and Beckmann2009). Companies can create mutual advantage by committing themselves to escaping social dilemma situations and also helping stakeholders to overcome dilemma structures using commitment services. Combined with the two dilemma structures—one sided and many sided—the appropriate governance strategies, self-commitments and commitment services, offer companies four different ways to assume ordo-responsibility for the order of their market interactions (Pies et al., Reference Pies, Hielscher and Beckmann2009).Footnote ³

In line with Buchanan (Reference Buchanan1975), thus, the ordonomic approach endogenizes normativity in the sense that legitimacy is based on voluntary agreement, which itself originates from realizing the potential of mutual gains by implementing Pareto-superior rule reforms. The ordonomic approach, however, goes beyond the notion of “choice among rules” (Buchanan, Reference Buchanan1990: 11) in the sense that creating new rules is not a choice activity but a governance activity that involves a creative social process of generating new knowledge and commitments through discussion and negotiation. In this respect, the ordonomic approach is close to Thomas Schelling’s understanding of credible commitments (cf. Schelling, Reference Schelling1960/2003, Reference Schelling2006) and, in particular, Oliver Williamson’s definition of governance as “the means by which to infuse order, thereby to mitigate conflict and realize mutual gain” (Williamson, Reference Williamson2010: 674; cf. also Williamson, Reference Williamson1983). Viewed from this governance perspective, the four strategic commitments are formal or informal contracts, which are deemed constructive and legitimate if they change the rules of the game so as to create mutually beneficial cooperation with stakeholders and society—that is, if they realize win–win–win potentials for 1) the firm, 2) the directly involved contracting stakeholders,Footnote ⁴ and 3) the indirectly affected actors in society. In line with Buchanan’s approach, we hold that win–win–win outcomes are a necessary condition for legitimacy.

2.2 Ordo-Responsibility of Sharing Platforms

How is ordo-responsibility in the sharing economy different from the ordo-responsibility of business firms? To the extent one focuses on the commercial platform organizations as business firms, their ordo-responsibility is equivalent to that of conventional companies. Sharing companies, too, can assume ordo-responsibility in various ways, for example, by binding themselves individually using private contract law (individual self-commitment) or by binding themselves collectively to higher environmental standards (collective self-commitment). However, in terms of commitment services, the sharing economy’s rule-setting function covers a larger set of ordo-responsibilities than the corporate citizenship of classical business firms.

From our ordonomic perspective, the novel ordo-responsibilities stem from establishing a constitution for novel sharing markets. When establishing a “platform constitution” for sharing markets, sharing platforms offer two types of commitment services for sharing partners. Using the social contracts perspective, these rule arrangements can be described and distinguished as constitutional and postconstitutional commitment services. In addition to these commitment services that help establish a sharing market and make it productive, sharing platforms also address some conditions of—or “constitutional limits” for—how these sharing markets can be managed once established. To further increase productivity of sharing markets, sharing platforms can honor the promises made to sharing partners by way of an individual self-commitment to refrain from exploiting them, and they can bind themselves collectively to higher common standards of accountability.

Considering that each of these commitment strategies can solve two different social dilemma situations, it is possible to establish a novel 2 × 3 matrix that collates six different ways how sharing-platform organizations can assume ordo-responsibility and thus create value in the sharing economy, four commitment-service strategies to establish sharing markets and make them productive, and two self-commitment strategies for enhancing productive exchange (Figure 1). In what follows, we will use real-life examples to illustrate these six possibilities of ordo-responsibilities in the sharing economy.

Figure 1: Ordo-Responsibility in the Sharing Economy

Note. Own diagram, extended from Pies et al. (Reference Pies, Hielscher and Beckmann2009: 389).

Box I in Figure 1 draws attention to institutional deficit problems. Institutional deficits cause situations of mutual exploitation and self-damage that can be analyzed using a many-sided social dilemma. The involved actors face the following incentive structure: although sharing partners are willing to cooperate by sharing goods and services on a digital platform, they lack the institutional means to credibly commit themselves and their interaction partners to mutually provide the promised benefits. Because all sharing partners are confronted with the same disincentives, cooperation breaks down—or fails to be established in the first place (Munger, Reference Munger2018). Therefore, before the advent of digital platforms and the sharing economy, institutional deficits resulted in underutilized and wasted societal and environmental resources.

From an ordonomic perspective, the solution requires a constitutional commitment. In this sense, the institutional deficits of sharing are similar to the problem of Hobbesian anarchy. That is why the solution is similar too. Like the protective state, sharing-platform organizations offer a “platform constitution” as a service to sharing partners that helps them overcome the many-sided social dilemma that prevented them from sharing.

How do sharing-platform operators do so? Generally speaking, commercial sharing platforms provide incentives for cooperation while discouraging defection through monitoring, disclosing, and sanctioning deception, fraud, and other forms of uncooperative behavior (Barbe & Hussler, Reference Barbe and Hussler2019; Reischauer & Mair, Reference Reischauer and Mair2018). For example, the popular sharing platform Airbnb performs background checks before admitting members to the platform and requires a detailed listing of accommodation features with pictures, neighborhood information, host profiles, house rules, and prices (Subbaraman, Reference Subbaraman2011). Airbnb also operates two feedback mechanisms; a platform-wide transparent review system; antidiscrimination rules; and a bilateral, nonpublic feedback system that allows generating individualized feedback to help new members improve their services without affecting public review ratings (Sundararajan, Reference Sundararajan2016: 151). Empirical studies show that Airbnb members tend to choose their sharing partners based on their performance—that is, on past behavior as visible in reviews and ratings (Parigi, State, Dakhlallah, Corten, & Cook, Reference Parigi, State, Dakhlallah, Corten and Cook2013). In a similar way, BlaBlaCar provides a peer-to-peer feedback mechanism that helps to create trust between potential passengers and drivers (Barbe & Hussler, Reference Barbe and Hussler2019; Mazzella et al., Reference Mazzella, Sundararajan, D’Espous and Möhlmann2016). From an ordonomic perspective, all these provisions help to set up a “platform constitution” as a service for collective self-commitments by sharing partners. This allows achieving a state of mutual betterment because the platform constitution enables interactions that were previously prevented by deficient institutions of sharing. Ex ante anarchy and the ensuing cooperation failure is transformed into the ex post situation of successful sharing.

Box II emphasizes the subsequent trade in private goods and services. To reap the full benefits of mutually beneficial exchange among sharing partners, further trust problems need to be solved. Problems of trust usually take the form of a one-sided social dilemma. For example, sharing service providers cannot be entirely sure that platform consumers will keep their promises to pay for services used, and consumers cannot fully trust that providers will deliver their services as promised (cf. Califf et al., Reference Califf, Brooks and Longstreet2020). Both problems are pervasive in the taxi market, in particular but not exclusively in the emerging markets of low- and middle-income countries. If law enforcement is weak, passengers might be tempted to behave inappropriately during the ride (damage property, harass drivers) or avoid payment after the ride (or pay less than agreed ex ante). These and other security issues often prevent, for example, female service providers from offering private ride-sharing services in developing countries (cf. Hielscher & Everding, Reference Hielscher and Everding2021). Ride-sharing platforms, such as Uber, Lyft, and Cabify, offer an individual constitutional commitment service to consumers to pay as promised (via a credit card payment system that forces passengers to pay in advance) and behave appropriately (by using two-sided review systems or emergency security hotlines, e.g., Uber’s safety report). Such commitment services help the interaction partners in achieving a win–win–win situation, which has been shown for Uber in Egypt (Uzunca et al., Reference Uzunca, Coen Rigtering and Ozcan2018) and Mexico (Hielscher & Everding, Reference Hielscher and Everding2021). In Egypt, for example, Uber has been successful in combating sexual harassment through required driver registration and reporting incidents to the police, with the effect that a considerable number of women (15,000; Egyptian Streets, 2018) are now operating Uber taxis in Alexandria and Cairo (Uzunca et al., Reference Uzunca, Coen Rigtering and Ozcan2018). The admission, screening, and review systems also support service providers in making credible their intent to keep promises. For example, the review system often discloses—and thus informally sanctions and prevents—uncooperative driver strategies pervasive in traditional taxi markets in developing countries, such as deliberate detours or attempted robberies (Dreyer et al., Reference Dreyer, Lüdeke-Freund, Hamann and Faccer2017; Uzunca et al., Reference Uzunca, Coen Rigtering and Ozcan2018). Studies also show how a variety of sharing platforms in Berlin help overcome opportunism in one-sided social dilemmas between sharing partners by monitoring, disclosing, and sanctioning uncooperative behavior (Reischauer & Mair, Reference Reischauer and Mair2018). In sum, such governance initiatives help interaction partners in overcoming one-sided social dilemmas via constitutional services for individual self-commitments that create and enhance mutual trust.

Box III highlights that platform club-good arrangements can enhance the sharing experience. For example, Airbnb’s motto “Happy traveling” is not just a promise to provide a platform for members to share accommodations; it is also a promise to foster a unique experience for guests (and hosts), including “switching-off,” reviving a relationship, connecting with other cultures, and creating special moments, thus enabling experiences many associate with traveling but rarely realize (de Botton & Chesky, Reference de Botton and Chesky2015). However, to nurture these unique experiences, hosts and guests face a many-sided social dilemma situation: confronted with alternative choices, everyone would like to consume an “enhanced” Airbnb experience without contributing much to it, because doing so involves “costs” (both monetary and nonmonetary), including time, information, devotion, and thought. To overcome this free-rider problem of collective action, Airbnb offers a postconstitutional commitment service to all sharing partners. Airbnb reminds hosts to contact their guests in advance, provide holiday tips and valuable information about the neighborhood, and identify guest preferences to enhance the guest’s experience. Airbnb also reminds guests to follow basic house rules and rules of politeness, share plans and personal preferences with hosts, and so on. Although it proves arguably difficult to prescribe “enhanced” moments, Airbnb is at least starting to experiment with solutions to a problem that traditional travel companies have failed to address for a long time, thus attempting to reach a higher level of mutual betterment. Furthermore, the provision of social insurance—for example, a “social safety net”—for sharing partners (Sundararajan, Reference Sundararajan2016: 187–92) falls into the same category of postconstitutional services for collective self-commitments, as this would help sharing partners overcome a many-sided social dilemma of pooling resources to address the social hardship that might occur for service providers.

Box IV describes how platform club-good arrangements can help overcome holdup problems of asymmetric information and dependency among sharing partners that limit their potential to reap the benefits of cooperation. For example, even if the platform constitution has secured sharing rights, it is still possible for Airbnb guests to damage a host’s property unintentionally. In such a situation, guests might be tempted to cover up their involvement, which might lead hosts to furnish their homes with inexpensive and lower-quality furniture, thus reducing the travel experience for travelers in the future. Sharing-platform organizations can overcome this one-sided social dilemma by providing an individual postconstitutional commitment service for guests by offering insurance coverage for damages. Airbnb, for example, provides a host protection insurance against liability claims up to US$1 million (Airbnb, Reference Airbnb2014). A similar problem is present on Uber’s ride-sharing platform (Uber, 2021). To allow service providers to offer a high-quality transport experience, Uber offers a loan scheme that supports drivers’ purchases of modern cars while credibly committing to repay the loan (by taking interest and repayments out of individual platform revenues). Both Airbnb’s insurance and Uber’s loan scheme are postconstitutional services for individual self-commitments by sharing partners that help them in generating mutual benefits.

Boxes V and VI, finally, describe how sharing platforms can bind themselves to assure platform users that they are safely protected against exploitation. Both cases define constitutional or postconstitutional limits of platform discretion.

Box VI draws attention to the possibility that sharing platforms can establish a platform “culture” of mutual trust between the platform and its users to overcome holdup problems related to power and information asymmetries. To do so, platforms can make use of individual self-commitments to honor the promises they have made explicitly or implicitly to users once they become part of the platform community. This includes the promise to offer a functional digital platform for user matching, admission and screening, payment processing, reviews and ratings, pricing, and other financial services. While some of these aspects are part of general terms and conditions, and are thus made credible through private contract law, platforms retain some important flexibilities, for example, in pricing, fees, ratings, and marketing, to be able to react to market developments (Sundararajan, Reference Sundararajan2016). Potentially, this could create holdup problems for specifically invested users, thus exacerbating information asymmetries and power imbalances (Calo & Rosenblat, Reference Calo and Rosenblat2017; Katz, Reference Katz2019; Rosenblat & Stark, Reference Rosenblat and Stark2016) between platforms and sharing partners. Finding themselves in a one-sided social dilemma, however, sharing platforms should have some interest in self-committing to refrain from exploiting users—and thus elicit their cooperative responses. In a sense, these specific investments and thus the exploitation potentials are comparable with the specificity that emerges when mobile phones are not portable from one to another service provider. If such specific investments make it harder for sharing partners to exit and change platforms, sharing platforms could provide them with stronger voice options, for example, by implementing a complaints mechanism that guarantees partners who are dissatisfied a right to be heard. Airbnb, for example, allows members a say in platform rule changes that affect hosts in a particular area, so-called Airbnb “home-sharing clubs” (Sundararajan, Reference Sundararajan2016).

Finally, Box V describes the possibility of collective platform self-regulation as yet another way to safeguard users from exploitation. To do so, sharing platforms can make use of collective self-commitments, for example, by binding themselves to higher social standards of accountability in international standardization clubs (collective self-commitment). Such collective self-commitments could possibly include creating a common ledger or blacklist of misbehaving sharing partners, referring to deception and fraud. Creating a collective cross-platform “club” standard of acceptable platform behavior, which covers monitoring, disclosure, and sanctioning mechanisms (Prakash & Potoski, Reference Prakash and Potoski2007), would not only increase the quality of each participating sharing platform but also meet the interests of sharing partners to enhance their interaction experience. Furthermore, it would protect their sectoral reputation. Interestingly, we are not aware that this strategy has been used so far.

Overall, our reconstruction suggests that in comparison to traditional firms, sharing platforms typically have—and indeed make use of—more governance options. Innovative sharing platforms establish and improve a constitution for sharing using two constitutional and two postconstitutional commitment services and a self-commitment to a platform trust management that reduces the level of potential exploitation. A fully legitimate interaction on a sharing platform would thus be measured against a triple notion of “win–win–win” outcomes that combines three relevant dimensions of legitimacy: the first “win” refers to benefits of the sharing platform, the second “win” to advantages of the directly involved sharing partners, the final “win” to the neutral or positive impact on indirectly affected third parties. If the latter are negatively affected, we speak of win–win–lose outcomes. In line with Buchanan’s approach, we hold that win–win–win outcomes are a necessary condition for legitimacy.