Innovation Experimentalism in the Age of the Sharing Economy

Abstract

Conventional wisdom says that innovation is fundamentally at odds with the Regulatory State: It is a gift of a handful of lonely geniuses that need to be unchained from State control and its rigid and obsolete regulations. The ‘Innovation State’ is ‘no country’ for old rules. Few scholars would seriously argue that the State should completely abdicate all responsibility for regulating innovation. Therefore, this Article suggests that the heart of the matter is not whether the State should be ‘in’ or ‘out’ of the innovation game, but rather when and how it should be involved. Drawing on examples from the sharing economy, I argue in this Article that experimental regulations would be an adequate instrument to regulate innovative products and services under uncertain conditions, balancing the risks and opportunities inherent to numerous innovations. Small-scale experimentation would allow for incremental learning and information gathering without impeding innovation. However, I also contend that in other cases, regulators should not rush into the enactment of temporary regulations on experimental grounds. Instead, the coming into effect of regulations should be delayed to a later stage when more information about an innovative product becomes available or when the technology itself is widely commercialized (e.g., driverless cars). Rules would thus be contingent upon these conditions and would ‘sunrise’ at a later date. Until now, sunrise clauses have not been analyzed in the context of law and technology. This Article seeks to fill this gap.

In this Article, I argue that regulators misperceive how the innovation process works, what, and when the State should regulate. While innovation is an evolving and a trial and error process, regulation is traditionally characterized by the stability and continuity of rules. Therefore, regulators often delay innovation by fitting innovative services in existing legal categories and failing to update the extant legal framework to the current state of technology. A step in the direction of solving this disconnection between law and innovation could be given by enacting an adaptable regulatory framework. This Article argues that when regulators are unable to make informed predictions about innovative products, they should consider timing the duration or the coming into effect of regulations, either by enacting temporary rules, which can be tested and reviewed on a systematic basis, or sunrise clauses. When the development of a forthcoming technology might be a potential source of risks, sunrise clauses defining the legal constraints (e.g., safety measures) to be considered by innovators, can give time to innovators to adjust to such rules without constraining innovation.

Keywords: sharing economy, digital platforms, regulation, innovation, experimental regulations, pilot programs, cities, sunrise clauses, Uber, Airbnb, peer-to-peer economy

JEL Classification: O31,O32, O38, K20, K21