Sunday, July 21, 2013

Creation vs. Diversion

I used to think AirBNB was cool, but now that Thomas Friedman has slurped it in the Times, I'm not so sure. One interesting thing in the piece was how the AirBNB founder confuses his company's revenue with new economic activity.

Surely most of AIRBNB's revenues are actually just diversion, no? I'd guess that at least 75% of their revenue is just diverted from hotel/motel revenue.

This is a common mistake. "look how much NAFTA increased trade", "Look how much the new stadium will boost the local economy" are examples of this kind of erroneous thinking.

Creation vs. diversion is an important and often overlooked distinction.

I just had a great stay in an AirBNB property in Brooklyn, but the Staten Island Hilton Garden Inn lost the revenue that AirBNB generated.



robert said...

Wasn't the actual economic activity created with the money you saved as a result of being diverted to an AirBNB spot?

Angus said...


Max said...

Have to concur here. It is mostly diversion and some efficiency gains because it increases competition. Had a few nice stays in airbnbs across new Zealand, though if they didn't exist I would have parked my money at normal hotels (of course missing out on some great hosts).

But as with nafta or the European free trade zone. It is efficiency of trade that increases because of a decrease of trade friction.

Squarely Rooted said...

I disagreed, respectfully, on my blog:

Rather than repost it all in your comments section, the short version is that AirBNB increases the efficiency of existing capital and resources which is the very essence of economic growth.