Platform exploitation in the sharing economy

Abstract

We model a revenue sharing contract between a sharing economy platform and a freelance service provider, where the latter hides revenue from the former by canceling some assignments and performing them for cash (“platform exploitation”). The platform counters this via costly, imperfect audits with endogenous success probability, and a variable payment. We show that at equilibrium, all agent types except the highest, indulge in revenue falsification. This problem is exacerbated by the principal's ability to extract restitution from the agent.