50 Things That Made The Modern Economy With Tim Harford

In Shanghai, a driver for the ride-hailing company Uber logs into an online forum. He's

not looking for a passenger. He's looking for someone to pretend to be a passenger. He

finds a willing taker. He pretends to collect the customer and drop her at the airport. In

fact, they never meet. Then he goes online and sends her money. The fee they've agreed

is about $1.60. Or perhaps the driver goes a step further, making up not just the journey,

but also the other person. He goes to the online marketplace, Tau Bao, and buys a hacked

smartphone. That enables him to create multiple fake identities. He uses one to arrange a ride

with himself.

Why is he doing this? Because he's willing to run the risk of being caught, and because

someone's willing to pay him to give people rides in his car. Investors in Uber and their

rivals have run up billions of dollars of losses in China and elsewhere, paying people

to share car journeys. Naturally, they're trying to stamp out the imaginary journeys,

but subsidising genuine rides? They're convinced that's a smart idea. This all seems bizarre,

perverse even, but everyone involved is rationally pursuing economic incentives. To see what's

going on, we have to understand a phenomenon that spawned many buzzwords, crowd-based

capitalism, collaborative consumption, the sharing economy, the trust economy. Or here's

the basic idea. Suppose I'm about to drive myself from downtown Shanghai to the airport.

I occupy only one seat in my car. Now, suppose that you live a block away, and you also need

to catch a flight. Why don't I give you a lift? You could pay me a modest sum less than

you'd pay for some other mode of transport. You're better off, so am I. After all, I was

driving to the airport anyway. There are two big reasons why this might not happen. The

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