January 11, 2015

Technology and Dispute Systems Design: Lessons from the “Sharing Economy

Ethan Katsh and Orna Rabinovich-Einy

The emergence of the field of dispute systems design (DSD) and the invention of the World Wide Web took place around the same time, in the late 1980s. For more than two decades, however, these fields have developed on separate tracks, with no connection. While the two arenas have been converging in recent years with the growth of online dispute resolution (ODR), the far-reaching implications of technology on DSD have yet to be fully explored.

ODR, representing the use of technology to support dispute resolution, was first introduced in the mid-1990s, after the Internet was opened up for commercial activity. As online transactions increased, so did online conflicts, misunderstandings, and problems. But for the vast majority of these disputes, traditional ADR processes and courts were unavailable, inappropriate, or unattractive.[i]

While initial ODR efforts attempted to imitate familiar offline dispute resolution processes, its developers soon realized that new processes and systems had to be designed, ones that fit the nature, values, and culture of the online environment. As a result, ODR systems became the preferred (and in some cases, the only) avenue for addressing disputes between sellers and buyers on eBay, between registered domain name holders and trademark owners, and between Wikipedia editors with widely diverging world views and ideologies.

As ODR has grown, it has become clear that the introduction of digital technology has triggered more than a technical change or minor adaptation in the structure, practice, and theory of dispute resolution and DSD. The nature of digital technology and communication – providing the ability to engage with individuals over great distances, instantaneously, at low cost, and aided by a machine programmed to collect and process data – changes the nature of human interaction, thus impacting the types of problems that emerge and the nature of avenues for addressing them. Digital technology has been a disruptive force, giving rise to new and frequent problems – but at the same time it has presented innovative possibilities for addressing and preventing disputes. These significant developments require a rethinking of some of the most fundamental principles and concepts that have shaped the evolution of DSD.[ii]

Adapting Dispute Systems Design to a Digital Society

The birth of the field of DSD is linked to the publication of the book “Getting Disputes Resolved: Designing Systems to Cut the Costs of Conflict” by William Ury, Jeanne Brett, and Stephen Goldberg, in 1988.[iii] As ADR became increasingly popular in the 1990s and early 21st century, the subfield of DSD continued to develop, addressing second-generation issues such as ethical dilemmas, power imbalances, and cultural biases,[iv] and was used in formal settings such as problem-solving courts and the September 11 Victim Compensation Fund.[v] Throughout these developments, the principal insights laid out by Ury et al. remained central – the understanding that disputes that arise in a closed setting can be handled systemically, not on an ad hoc basis, and that such systemic handling of disputes can lead not only to more effective dispute resolution but to dispute prevention.

Despite the growth of DSD, digital technology remained on its periphery. A clear distinction between the on- and offline world colored DSD activities, relegating online conflict to niche activities that take place between distant strangers with low monetary value. Accordingly, ODR systems that emerged for addressing such issues were seen as discrete solutions for isolated problems for which the traditional dispute resolution world could not provide an effective response.

Over the years, however, the line separating online and offline activities has blurred. The pervasiveness of social media and the shift from desktop computers to mobile technologies has made the Internet ubiquitous, and in almost every aspect of our lives, we now communicate through digital means. We are constantly online, with social and commercial activities increasingly intertwined. This has also meant that the realm of online conflicts has expanded, presenting new challenges for traditional dispute resolution mechanisms. As dispute resolution practitioners and researchers learn to accept that digital technology is an inherent part of our lives and our conflicts, they must ask themselves about the implications of this insight for the realm of DSD.

What should DSD activity in the digital age look like? To begin answering this question, we need to look at developments taking place online today. One of the most interesting frontiers of online activity is the “sharing economy,” specifically, sites such as Airbnb, Uber, TaskRabbit, RelayRides, and others. On these and similar sites, technology occupies center stage not only for facilitating transactions but for addressing and preventing problems. Problems and disputes that may lead to a breakdown in trust threaten the very existence of these platforms and therefore need to be dealt with effectively through online systems and tools. As a former customer service manager at TaskRabbit recently told us, “dispute resolution is the one thing that you can’t get wrong.”[vi]

In addressing and trying to prevent conflict, sharing economy platforms follow a logic that is very different from the one we find in the traditional DSD arena: physical face-to-face presence and communication are a rare exception, dispute prevention and resolution activities are intertwined, and much of the resolution activity takes place from the bottom up, by peers or customer service representatives, outside the sphere of “formal” spaces on the site, through blogs, social media sites, and the like. Perhaps most important, the design of systems is explicitly tied to the collection and processing of data.

Lessons from the Sharing Economy

Characteristics of the Sharing Economy   

Sharing economy platforms such as Airbnb, Uber, and TaskRabbit allow individuals to connect and obtain services formerly provided by designated professionals, industries, and businesses. In the aftermath of the economic downturn, values such as collaboration and sharing have been embraced and celebrated, and new technologies, especially social media and smartphones, have reinforced these developments. Many participants in the sharing economy think laws, formal rules imposed by outside authorities, are unnecessary.

The sharing economy has several hallmarks, perhaps the most important of which is a strong identification with the empowerment of individuals and peer-to-peer engagement at the expense of large entities and traditional intermediary institutions and professions. In this world, passive consumers become active suppliers. The sharing economy also typically makes use of under-utilized goods and services, allowing individuals to lend, rent, or take advantage of goods, space, or resources that once were idle much of the time. A third distinguishing feature relates to these endeavors’ reliance on reputation systems as a means of engendering trust in an environment that frequently brings together complete strangers. Still another important factor is the spread of smartphones, social media, and convenient apps, which has made sharing economy platforms all the more appealing and pervasive. In addition, the advancement in GPS technology has made many of the mobile and car-related devices much more efficient. In all these devices and in all this activity, data collecting and data processing are occurring in the background.

Sharing Economy Disputes and their Resolution: Lessons from Airbnb

Discussion of the sharing economy often emphasizes the “sharing” component – collaboration, shared values, and a sense of community – more than the commercial side. Alongside the manifestations of an ethos of collaboration, however, there have also been numerous problems, clashes, and conflicts. Some of these disputes have emerged between users of the platforms themselves; in other cases, they have been between users and the web site.

Airbnb, which was launched in 2008 and is now one of the most popular of the sharing economy platforms, permits people to make available for rent a spare room or an entire apartment, allowing owners to earn extra income from an idle resource. The site connects individuals from all over the world, and more than 20 million guests have stayed in 34,000 cities in 190 countries.[vii] Hosts post information about their property and connect with individuals who are looking for a place to stay. Following the experience, both parties rate each other. For both sides, a positive reputation is crucial if they wish to continue to be hosts or book a reservation again on the site. In this sense, the Airbnb model drew on previous e-commerce sites that relied on ratings, most notably eBay.

Initially, Airbnb’s expectation was that a transparent reputation market would prevent problems from arising and that Airbnb would not need to involve itself in addressing conflicts between users. Over time, however, Airbnb learned, as others have in the past, that if it would like to remain a major player in the e-commerce market, it would have to think seriously about and address disputes. When hosts found that their apartments had been vandalized and their possessions stolen, they expected Airbnb to step in and were outraged by Airbnb's original stance of non-responsibility.[viii] This realization has prompted Airbnb to offer insurance to hosts and hire a former eBay executive as head of its customer support unit.[ix]

Over time, Airbnb has begun conducting background checks on users as well as allowing users to view each other’s Facebook profiles. This lets hosts and guests become more familiar with each other, connects individuals with a broader circle of acquaintances, and consequently reduces apprehension and enhances trust. Airbnb has also created a category of “Superhosts” for active property owners who excel over time, giving them a badge and other benefits and signaling guests that they are trustworthy.

Another important means for preventing disputes and ensuring a satisfactory transaction is Airbnb’s use of big data to discern guest preferences and choose which available properties to highlight and display to a user, thus lowering the chance of conflict erupting.[x] Despite prevention efforts, however, conflicts do occur. In one high-profile dispute, the “guests” refused to vacate the premises, taking advantage of California’s tenant protection laws.[xi] Airbnb initially signaled to the host that it was not a party to the conflict, since it is merely a platform that allows individuals to connect; eventually, however, Airbnb offered to cover rent due and legal assistance.[xii]

Airbnb now offers dispute resolution avenues for an array of problems. One set of issues includes refunds and additional payments that need to be transferred between the parties. In those cases, parties are referred to an online “resolution center” that allows for direct communication between the parties. Should the parties fail to communicate or reach an agreement, they can request that Airbnb make a final decision and resolve the dispute.[xiii] Reservation cancellations or alterations are covered by a policy and may jeopardize hosts’ “Superhost” status as well as cost them an automatic review regarding such cancellation.[xiv] Various other issues, such as accommodations not matching the description or being unclean, fall under the “guest refund policy,” which applies during the first 24 hours after arrival, although Airbnb can still mediate between the parties later on.[xv]

A final category of conflicts, one that has received considerable media coverage and public attention, is that involving regulators and professionals on one side and the company and its users on the other. Many ventures of the sharing economy, including Airbnb, are challenging existing laws and regulations and threatening the livelihood of particular professions and service providers. In many respects, this is an extension of familiar developments associated with the proliferation of the Internet and digital communication: the rise of peer-to-peer communication at the expense of traditional middlemen. These middlemen include financial services personnel and travel agents and now, in the age of collaborative endeavors, taxi drivers, repair people, and members of the hotel industry. This disintermediation has led not only to strikes and protests by those challenged by the new sites but to fierce reactions by some regulators and law enforcement agencies.

Regulators in states such as New York and Minnesota have voiced concerns over sharing economy enterprises.[xvi] In New York, for example, tenants may not rent their apartment for a period under 30 days without living there, a regulation that affects many Airbnb hosts, and New York authorities have begun enforcing these regulations, resulting in consequences ranging from fines to eviction.[xvii] Other types of regulations include safety- and health-related rules, such as the presence (or absence) of smoke detectors, as well as licensing requirements and work conditions.[xviii]

Some of the problems and conflicts of the sharing economy resemble those encountered in earlier, more traditional e-commerce endeavors, but there are significant differences. One comes from the fact that a large portion of these endeavors relate to services, not just goods, as was common in the early days of e-commerce. As services are offered in a peer-to-peer model and sometimes in auction format, imbalance of power becomes a major issue and shapes the types of problems that arise and the solutions that can be reached. Policies that were effective in addressing conflicts related to defective goods or payment for ordered products may not be satisfactory or may be perceived as unfair when applied to services. In the case of Airbnb, for example, concerns over privacy and personal safety in other people’s homes may be a source of apprehension. Finally, dissatisfaction with services poses challenges that are different from those that come from discontent with goods; disputes involving services are more varied, more complex, and more difficult to remedy. Monetary refunds may not always compensate for the harm done.[xix]

The very nature of today’s technology makes these disputes different from any we have seen before: when people in distant places communicate with cell phones, video, and texts almost instantaneously, the opportunity for – and impact of – miscommunication and error can increase quickly and significantly. Communication on these sharing platforms, often by mobile phones, is “thinner” than handwritten information, and as a result, misunderstandings can quickly become both extreme and “loud.” Traditional dispute resolution mechanisms, ones that have high costs, require people to face each other, and take considerable time, are ill-suited to today’s sharing economy.

What have we learned about DSD from the way these new companies have chosen to address disputes on their sites? One central lesson is the pivotal role played by technology in collecting and using data to shape transactions and prevent disputes. Digital technology is not only more convenient and efficient; it opens up many more opportunities and options on the resolution and prevention fronts. A variety of approaches and models not available in physical space allows Airbnb to detect bad actors by monitoring activity on its site, authenticate identity, better match guests with hosts, and coach parties on behaving appropriately and dealing with problems once they arise.

Identifying data that can assist in prevention may be the most important lesson the Airbnb case study has to offer. The combination of effortless recording of large amounts of data relating to hosts, guests, and any other visitors to the site creates a huge database that can be cross-checked with information on problems and resolutions, generating unique insights on how to structure more satisfactory transactions, what problematic patterns need attention, what rules and practices require clarification or amendment, and which participants require mentoring or instruction. Learning opportunities extend to the dispute resolution avenues themselves, producing insights on such issues as the effectiveness of certain approaches.

Another lesson, which goes back to the early days of DSD, is the need for the site on which the activity takes place to be accountable for the problems that arise. Just as a large organization operating in the physical world has a strong interest in taking responsibility for conflicts between its employees or customers, sharing economy endeavors and other online entities need to understand that ignoring problems or shunning responsibility will end up hurting their business.

Concluding Thoughts

While the ideas underlying the sharing economy seem laudable, many of these sharing initiatives have received a fair share of criticism for practices inconsistent with those ideas.[xx] Critics, for example, have claimed that what is hailed as a vehicle for empowering individuals is actually a means for allowing large companies to lower the cost of doing business by bypassing applicable laws and regulations relating to realms such as certification, labor and employment rights, taxation, safety, and hygiene,[xxi] while individuals participating in these ventures can suffer real harm. [xxii] Some critics further claim that what is driving the sharing economy is not trust and values but the failing economy and people’s need for a job or supplemental income.[xxiii]

The ways in which these entities handle problems and disputes may prove to be a crucial element in determining whether “sharing” is more than a label and whether these kinds of commercial transactions can sustain a new industry. DSD seeks to advance fair and effective systems for addressing, resolving, and preventing disputes. While technology has undoubtedly enhanced the effectiveness of efforts in resolving problems that arise in the sharing economy, it remains an open question how far these systems have advanced processes and resolutions that are also fair.

The plethora of communication avenues that have served to promote sharing economy ventures may also prove key in ensuring that these entities handle problems in a fair and balanced manner, as blogs and other social media outlets are already presenting an active “informal” space in which individuals share stories about problems and how they are being addressed.

DSD is based on collecting data and identifying patterns of conflict. Yet in the past, opportunities for collecting data and identifying patterns of disputing have been lacking. The founders and practitioners of the field of DSD could not have anticipated the data collection and processing capabilities available in today’s online environment. The challenge now is to employ dispute system design and use this data to build trust and prevent disputes while also addressing concerns over privacy and misuse of personal data.[xxiv]

Ethan Katsh is the Director of the National Center for Technology and Dispute Resolution and a 2014-15 Research Affiliate at the Berkman Center for Internet and Society at Harvard University. He can be reached at katsh@legal.umass.edu. Orna Rabinovich-Einy is a Senior Lecturer at the University of Haifa Faculty of Law and a Fellow at the National Center for Technology and Dispute Resolution. She can be reached at orabin@law.haifa.ac.il.

[i] See Ethan Katsh & Janet Rifkin, Online Dispute Resolution, Resolving Conflicts in Cyberspace (2001).

[ii] Orna Rabinovich-Einy & Ethan Katsh, Digital Justice: Reshaping Boundaries in an Online Dispute Resolution Environment, 1 Int'l J. of Online Disp. Resol. 5, 7 (2014), available at http://www.international-odr.com/documenten/ijodr_2014_01_01.pdf; Orna Rabinovich-Einy & Ethan Katsh, Technology and the Future of Dispute Systems Design, 17 Harv. Negot. L. Rev. 152, 155-164 (2012), available at http://www.hnlr.org/wp-content/uploads/2012/09/151-200.pdf.

[iii] William L. Ury et al., Getting Disputes Resolved: Designing Systems to Reduce the Costs of Conflict (1989).

[iv] See, e.g., Lisa Bingham et al., Dispute System Design and Justice in Employment Dispute Resolution: Mediation at the Workplace, 14 Harv. Negot. L. Rev. 1 (1999); Carrie Menkel-Meadow, Are There Systemic Issues in Dispute System Design? And What We Should [Not] Do About It: Lessons from International and Domestic Fronts, 14 Harv. Negot. L. Rev. 195 (2009).

[v] Carrie Menkel-Meadow, Peace and Justice: Notes on the Evolution and Purposes of Legal Processes, 94 Geo. L.J. 553, 574-575 (2006).

[vi] Interview with Nicolas Waldmann, former Director of Trust and Safety, TaskRabbit (Sept. 15, 2014).

[vii] About Us, Airbnb.com, https://www.Airbnb.com/about/about-us (last visited Dec. 20, 2014).

[viii] Jenna Wortham, After Horror Stories, Airbnb Unveils New Policies, Int’l N.Y. Times (Aug. 1, 2011 5:53 PM), http://bits.blogs.nytimes.com/2011/08/01/after-horror-stories-Airbnb-unveils-new-policies/.

[ix] Id.; for a critique of the Airbnb scope of insurance coverage, see Ron Lieber, A Liability Risk for Airbnb Hosts, N.Y. Times (Dec. 5, 2014), http://www.nytimes.com/2014/12/06/your-money/airbnb-offers-homeowner-liability-coverage-but-hosts-still-have-risks.html (last visited Dec. 20, 2014).

[x] Russ Roberts, Nathan Blecharczyk on Airbnb and the Sharing Economy, Libr. of Econ. and Liberty (Sept. 1, 2014), http://www.econtalk.org/archives/2014/09/nathan_blecharc.html.

[xi] Carolyn Said, What the Airbnb Squatter Says About the Sharing Economy, Skift.com (Jul. 27, 2014 8:01 AM), http://skift.com/2014/07/27/what-the-Airbnb-squatter-says-about-the-sharing-economy/.

[xii] Id.

[xiii] When Can I Involve Airbnb in My Resolution Center Request, Airbnb.com,  https://www.Airbnb.com/help/article/783 (last visited on Dec. 20, 2014).

[xiv] Can I Make Changes to a Confirmed Reservation?, Airbnb.com, https://www.Airbnb.com/help/article/50 (last visited Dec. 20, 2014); How Do I Cancel a Reservation as a Host?, Airbnb.com, https://www.Airbnb.com/help/article/166 (last visited Dec. 20, 2014).

[xv] How Do I Report Something’s Wrong when I Check In?, Airbnb.com, https://www.Airbnb.com/help/article/248 (last visited Dec. 20, 2014).

[xvi] See, e.g., Arun Sundararajan, Why the Government Doesn’t Need to Regulate the Sharing Economy, Wired.com (Oct. 22, 2012 1:45 PM), http://www.wired.com/2012/10/from-Airbnb-to-coursera-why-the-government-shouldnt-regulate-the-sharing-economy/.

[xvii] Andrew Leonard, The Sharing Economy Does Not Want to Share Your Legal Bills, Salon.com (Apr. 8, 2014 2:06 PM), http://www.salon.com/2014/04/08/the_sharing_economy_does_not_want_to_share_your_legal_bills/.

[xviii] Joshua Brustein, New York’s Attorney General: Reluctant Scourge of the Sharing Economy, Bloomberg Businessweek (Jul. 16, 2014), http://www.businessweek.com/articles/2014-07-16/eric-schneiderman-reluctant-scourge-of-the-sharing-economy (last visited Dec. 21, 2014).

[xix] See Ethan Katsh & Orna Rabinovich-Einy, Dispute Resolution in the Sharing Economy, in Internet Monitor 2014: Reflections on the Digital World 59, 60 (Urs Gasser et al., eds. 2014), available at http://thenetmonitor.org/research/2014.

[xx] Andrew Leonard, “Sharing Economy” Shams Deception at the Core of the Internet's Hottest Businesses, Salon.com (Mar. 14, 2014 7:43 AM), http://www.salon.com/2014/03/14/sharing_economy_shams_deception_at_the_core_of_the_internets_hottest_businesses/; Andrew Leonard, You're Not Fooling Us Uber! 8 Reasons Why the “Sharing Economy” Is All About Corporate Greed, Salon.com (Feb. 17, 2014 12:30 PM), http://www.salon.com/2014/02/17/youre_not_fooling_us_uber_8_reasons_why_the_sharing_economy_is_all_about_corporate_greed/

[xxi] Tarun Wadhwa, The Sharing Economy Fights Back Against Regulators, Forbes.com (Sept. 16, 2013 10:02 AM), http://www.forbes.com/sites/tarunwadhwa/2013/09/16/the-sharing-economy-fights-back-against-regulators-with-an-advocacy-group/;  For a discussion on clashes with regulators, see Technology Quarterly: All Eyes on the Sharing Economy, The Economist.com (Mar. 9, 2013), http://www.economist.com/news/technology-quarterly/21572914-collaborative-consumption-technology-makes-it-easier-people-rent-items (last visited Dec. 21, 2014); Stuart Dredge, Sharing Economy Drives into Trouble with Ride-Sharing Arrests, The Guardian (Aug 5, 2013 7:08 AM), http://www.theguardian.com/technology/appsblog/2013/aug/05/sharing-economy-uber-lyft-peers; see also William Alden, The Business Tycoons of Airbnb, N.Y. Times Mag. (Nov. 25, 2014), http://www.nytimes.com/2014/11/30/magazine/the-business-tycoons-of-airbnb.html (last visited Dec. 21, 2014) (distinguishing between the “professional operators” and the “amateurs” that are operating on Airbnb and similar sites).

[xxii] Technology Quarterly: All Eyes on the Sharing Economy, supra note 21. 

[xxiii] Steven Strauss, “Welcome” to the Sharing Economy – Also Known as the Collapse of the American Dream, The Huffington Post (Dec. 29, 2013 8:05 PM), http://www.huffingtonpost.com/steven-strauss/welcome-to-the-sharing-economy_b_4516707.html; Kevin Roose, The Sharing Economy Isn't About Trust, It's About Desperation,” New York Mag. (Apr. 24, 2014 9:25 PM) http://nymag.com/daily/intelligencer/2014/04/sharing-economy-is-about-desperation.html.

[xxiv] Neil Irwin, Uber Scandal Highlights Silicon Valley’s Grown-Up Problem, Int’l N.Y. Times (Nov. 19, 2014), http://www.nytimes.com/2014/11/20/upshot/ubers-latest-scandal-and-silicon-valleys-grown-up-problem.html?abt=0002&abg=0 (last visited Dec. 21, 2014). See also Why You Should Not Use Airbnb, Airbnbhell.com (Jul. 8, 2013 1:48 AM), http://www.airbnbhell.com/.

Ethan Katsh and Orna Rabinovich-Einy