“If you want to know why at present we own rather than share, the answer is transaction costs. And that is all going to change.” —Michael C. Munger, Tomorrow 3.0: Transaction Costs and the Sharing Economy(page x)

In his most recent book, Mike Munger sees Airbnb and Uber as portents of a future in which reduced transaction costs will allow us to make more efficient use of durable goods. In the process, Munger offers other important lessons in economics. His thesis also leads one to worry about the implications for liberty in a society where individuals own less and share more.

A commenter on my blog, without having read the book, offered what amounts to a pithy summary:

Ownership is a form of market failure

– Your car being parked 23 hours a day just to ensure that it’s there when you need it.

– Transaction costs of selling/buying your house tying you down and decreasing efficiency of your human capital.

“Market failure” is a loaded term. It might be better to say that we own consumer durable goods in part because of market frictions, or transaction costs. Munger describes transaction costs as:

… the sum of what I will call triangulation, transfer, and trust (page xi)

“Triangulation” is how potential buyers and sellers finding one another. “Transfer” implies getting the good from the seller to the buyer. And “trust” means that the buyer and seller both are assured that they will receive what they expect.

In the case of triangulation and Airbnb, somebody who wants a short-term rental in a particular location needs to find someone who is willing to rent space there. The transfer can be effected by getting the renter the keys to the room, along with instructions about how to use the appliances, connect to Wi-Fi, and so on. A major source of friction is trust; the renter wants to be confident that the room is satisfactory and the owner wants to be confident that the renter will leave the space in good condition.

If all of these sources of friction were to disappear, then you might be willing to let someone else use your apartment any time you don’t need it. We have come to describe this as the “sharing economy,” although “sharing” is another loaded term. In fact, a rental transaction takes place.

Imagine how you might live if there were no frictions:

Instead of storing pots, pans, and other kitchen equipment in your home, you could rent these goods as needed. A business would deliver them before you prepare a meal and take them away after you have finished eating. Or you could do away with a kitchen altogether and simply have meals delivered to your dining area.

Instead of storing clothes in your home, you would rent them on an as-needed basis. A business would deliver in the morning the clothing you want to wear today, and at the end of the day it would take them away and clean them.

In fact, your family might not have a single residence at all. You might have one place where you sleep during the week and a variety of different places where you sleep on weekends.

Munger acknowledges that we may be unlikely to go to such an extreme renting scenario, but,

… each of us will have far fewer actual possessions while we make better use of the stuff we still have. We’ll be less selfish, less crowded, richer, and more cooperative, all because entrepreneurs can sell reductions in transaction costs. (page 8)

Munger believes that this transition toward fewer goods used more intensively is a revolution, comparable to the adoption of agricultural or the Industrial Revolution.

The third great revolution will be based on innovations that focus on digital tools that reduce transaction costs, not on the creation of new physical products themselves.

The result will be that society will be able to make much more intensive use of durables of all kinds… the quality and durability of the items being rented will increase sharply, but also the quantity of items actually in circulation will plummet.

People will collect experiences, not belongings, and the idea of ownership will seem quaint and archaic by the end of this century. Very few people under the age of thirty will have driver’s licenses. Or jobs. (page 23)

Because Munger is concerned about jobs disappearing, near the end of the book he makes a case for a universal basic income. At a more philosophical level, he writes