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An Economic Response to Unsolicited Communication
Thede Loder Marshall Van Alstyne Rick WashUniversity of
MichiganBoston University & MIT University of
Michigan
2© 2006 Loder, Van Alstyne & Wash, all rights reserved.
4© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Agenda
• Description of the problem– From regulatory and technical perspectives– From an economic perspective
• Application of the Coase Theorem plus Signaling & Screening from information economics
• Comparison against idealized perfect filter and perfect tax.
• Cover surrounding issues of adoption, spoofing, free speech, viruses & spam zombies.
5© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Data on the Spam Problem• Estimated yearly loss to business $20 billion (Ferris Rsch)• Federal ‘Can Spam’ Act enacted in 2004 with near unanimous support;
superceding 8 State laws (NYT) …but no impact (Pew Internet Report) 55% (Brightmail 2003) , 77% (CDT 2004) of all email is now spam • 29% of Americans report curtailing e-mail use (Pew Internet report)• Zombies send 50-80% of all spam (FTC), 25% of US pc’s infected (Symantec)• No consensus definition: 92% adult, 74% political/religious, 65% charities, 32%
unsolicited + prior biz relation, 11% unsolicited + granted permission to market. • 1/3 users clicked on link, 5% admit to purchase, 3% provided pers. info. (Pew)
Spammer Alan Ralsky vowed to carry on (NYT)
10© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Existing or Proposed Solutions
• Legislative/Regulatory:– Banning, labeling– Taxation, stamps
• Technological:– Filtering: Rule based (static or dynamic), Bayesian
Filters, collective/community classification– Challenge Response: quasi-Turing tests, return address
testing, computational challenge• Economic
– computational challenge– Bonds
12© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Problems with Existing Solutions
• Whose spam definition?• Banning and labeling
– Enforceability, jurisdiction?– Costly to police and adjudicate– Labeling lacks incentive
compatibility– Exemptions for prior biz
relations, political groups• Taxing & e-stamps
– Blocks wanted along with unwanted email
– Blunts cost-effectiveness of email as medium
• Filtering (Rules, Collaborative, Bayesian): – False positives, false negatives– Increases spam email traffic
(attempts to penetrate)– Costly arms-race– Consensus definition– Blocks automated
correspondence• Challenge-Response (Reverse
Turing Tests)– Cheaply hire real people– Unrecoverable costs
Legislation Technologyy
Technology: Smart Infrastructure
TCP/IP pattern detection – TarPit tie up server:
451 – Your spam is important to us. Please stay online…
451 – Your spam is important to us. Please stay online…
451 – Your spam is important to us. Please stay online…
451 – Your spam is important to us. Please stay online…
451 – Your spam is important to us. Please stay online…
451 – Your spam is important to us. Please stay online…
Source: Martin Lamb – MIT Spam Conference 1/16/04
Technology: Smart Infrastructure
SMTP pattern detection – TarPit reject incoming mail:
Error 452 – I don’t need any Viagra. Go Away.
Source: Martin Lamb – MIT Spam Conference 1/16/04
17© 2006 Loder, Van Alstyne & Wash, all rights reserved.
CAPTCHAs
• Completely Automated Public Turing test to tell Computers and Humans Apart
• But, clever pornographers have inverted the weapon, simply routing the test to people for free porn.
Filter vs. Filter
berkshiremarriottwireless
© 2004 John Graham-Cumming “How to beat an Adaptive Spam Filter”
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Warning: risqué!
20© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Where is “v1@grya” or <naughty-body-part> ever used?
“… get a rod like a firehose.”
21© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Where is “v1@grya” or <naughty-body-part> ever used?
22© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Where is “v1@grya” or <naughty-body-part> ever used?
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
What is spam?
28© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Improving Welfare
I. In economic terms, spam is “message pollution” a negative externality arising from sender attempts to reach a tiny group of people who want their products.
The approaches to pollution are filters, regulation, and …
29© 2006 Loder, Van Alstyne & Wash, all rights reserved.
The Coase Theorem – Property Rights
Resolve why the market failed…
Old: Pigou’s theory that gov’t should force private parties to “internalize” externalities by means of taxes.
New: Coase argues that affected parties can do so via trade and negotiation, if (1) property rights are well defined and (2) transaction costs are negligible.
Regardless of initial assignment, the social outcome is at least as efficient.
Nobel 1991 – “for his discovery and clarification of the significance of
transaction costs and property rights for the institutional structure and functioning of
the economy.”
No unilateral solution can do better.
30© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Improving Welfare
I. In economic terms, spam is “message pollution” a negative externality arising from sender attempts to reach a tiny group of people who want their products.
II. The Coase Theorem: one solution is to define attention rights, i.e. create a mechanism to charge those who create waste.
III. But assign property rights to recipients!a. A sender right to waste recipient time encourages extortion.
Spammers just threaten to send more. b. Seems obvious, but no. Also interpreted as right to be heard.c. If transaction costs are high, assign rights to the party with
higher costs of avoiding waste.
32© 2006 Loder, Van Alstyne & Wash, all rights reserved.
• [r, r] and [s, s] are bounds on reader and sender values.• Sender knows own value s and cost cs before sending,
won’t send when s < cs.• There may be good SG and bad SB sender distributions,
sender knows from which distribution he draws.• Recipient only knows her r value after reading and
incurring cost cr .• Filtering results in a fraction of messages not getting
through.
Terminology & Assumptions
39© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Modeling Email ValueExamples:- project update from colleague- long lost high school buddy- friend’s wedding announcement- shipping update from vendor- recruiting lead from a friend- favorable press story
Examples:- market research & focus groups- polling- persuasion, “vote for X”- pornography- message with attached virus- phishing, Nigerian scam- key logger, password stealer
Examples:- personalized loan app- custom news- subscription content- sales leads- Google Answers- credit score
= cost to receive
= cost to send
cr
cs
r
s
rs
r
s
Wanted
Unwanted
Wanted butNot Sent
Unwanted andNot SentExamples:
- embarrassing news sent to wrong person
- old news- accidentally telling your boss
what you really think
40© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Specific modeling assumptions are robust
cr
cs
r
cost to receivecost to send
s
region of positive probability
cr =cs =
rs
r
s
45© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Social Welfare Contribution
Received email northeast of the diagonal line makes a positive contribution to social welfare
cr
r
W+
positive contribution to W
negative contribution to W
cs
Welfare (W) = RS + SS
RS = Recipient SurplusSS = Sender Surplus
s
47© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Interpreting Existing Solutions
cs
cs+ tax
r
Flat Tax, Stamps, Challenges, & Criminalization Penalties
lossUnwantedUnwanted
Unsent
loss
cr
SW+
s
cs
cs/n
r
FilteredWaste
Unsent
Filtering (all types)
Good mail blocked
Bad mailpassed
54© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Not all filtered email is waste!
Perfect Filter
DefinitionA technological filter that: Operates without cost Makes no mistakes (no false
positives, no false negatives) Intuits and internalizes all
reader preferences Eliminates, prior to receipt,
any email where r < cr
Filtered
Unsent
gain
loss WantedWanted
cs/ W+cs
r
cr
55© 2006 Loder, Van Alstyne & Wash, all rights reserved.
With a Perfect FilterA Lot of Value is Wasted
A perfect filter: Operates without cost Makes no mistakes (no false
positives, no false negatives) Discards any email where r < cr
Unsent
WantedWanted
W+cs
r
crSent & Sent & FilteredFiltered
Sent &Sent &Pure WastePure Waste
UnSent &UnSent &WantedWanted
But a filter: Allows no negotiation Never helps generate new
content you do want And can’t transfer value from
legitimate senders
= unrealized positive value
56© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Reverse Signaling – Buying Leads
• Judson Brady, the owner of Broad Street Flowers, pays Ingenio around $4.15 for each call from a prospect. NYT Feb 27, 2006
• Google Answers lets you pledge your credit card as bond for getting answers to critical questions.
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Problem: How do you reveal information without negotiation?
62© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Signaling & ScreeningSignal: information conveyed by a knowledgeable party that is credible because it is costly to fake.
Screen: a device used by uninformed parties to sort others in the market by offering them different options. A choice reveals the hidden private information.
Nobel 2001 –“for their analyses of markets with asymmetric
information”
The right spam mechanism sorts based on intent not content.
Akerlof Spence
Stiglitz
63© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Consider an “Attention Bond”
• Simple screening mechanism applied to unrecognized senders.• Challenge demands an escrowed bond fee of amount .• Recipient has sole discretion to claim or return , with expected bond
forfeiture b=p, all proceeds go to recipient• Effects:
1. A recipient-controlled variable ‘tax’ on senders, based on sender behavior2. Shift task from ex ante classification (hard) to ex post verification (easy).3. Compensates recipient directly for any wasted time
Initially, the sender knows more about message content than the receiver, so force them to reveal that private knowledge:
64© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Consider an “Attention Bond”
1. Recipient sets screen, chooses bond size bi.2. Unknown senders must post bond bi to get through.3. On reading message, recipient chooses to claim or return bi, with expected bond
forfeiture i =pibi .
• Effects: – Seized bonds are side-payments -- increase recipient willingness to accept low value messages.– Bond choice functions as a (weak) price signal indicating recipient type.– Willingness to post bond signals sender private knowledge of message value.– Shift task from ex ante classification (hard) to ex post verification (easy).
If the sender knows more about message content than the receiver, force him to reveal that private knowledge:
65© 2006 Loder, Van Alstyne & Wash, all rights reserved.
…and Sender issues bond authorization
A
The bond is posted
$
Sender mail server issues bond authorization
A
Recipient’s Escrow issues notification of bond receipt
N
M
Recipient’s Mail Server delivers original messageThe bond is returned
$
The Recipient claims bond or lets it expire.
A
The ABM in Action
M
Sender initiates a messageSender mail server attempts delivery
M
Sender on Whitelist, mail delivered
M
Sender not on whitelist, bond-challenge issued
C
or the challenge is delivered to the Sender…
C
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Warning: economics!
69© 2006 Loder, Van Alstyne & Wash, all rights reserved.
The Reader’s choice of bonddrdsbcrkRS
r
r
s
bc rBs
)(Reader Surplus defined:
rs crr
csb22
1Optimal expected bond:
Reader Surplus:
2
24
1
rsB c
rrcs
ssRS
0RSRSB Always:
70© 2006 Loder, Van Alstyne & Wash, all rights reserved.
The Perfect Filter
drdscrk
RSr
c
s
c rPFr s
)(
Reader Surplus defined:
Reader Surplus:
PFB RSRS Bonding wins if:
rr
cr r
Perfect Filter: Send if: scs
ssrr
cscrRS sr
PF
2
2
rs c
rrcsb
222
71© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Social Planner’s choice of bond
drdscscrRSSSWr
r
s
bc srs
)(*** Welfare defined:
2* rr
cb r
Optimal bond:
10,* kkWWAlways:
The socially optimal bond depends only on reader attributes, providing a subsidy if reader surplus is positive and compensation if surplus is negative.
It is the ideal Pigouvian tax for homogeneous senders and receivers.
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Choosing the expected bond size b = p.
73© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
cr
r
s
cs
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipient
UnwantedUnwanted
WantedWanted
W+
74© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipient
UnwantedUnwanted
WantedWanted
cs+p
cr -p
r
s
W+
Now transfer p where p >0, > 0
75© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipient
UnwantedUnwanted
WantedWanted
cs+p
cr -p
r
W+
p increasing…
76© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipient
UnwantedUnwanted
WantedWanted
cs+p
cr -p
r
s
W+
p increasing…
77© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipientUnwantedUnwanted
WantedWanted
cs+p
cr -p
r
s
W+
p increasing…
78© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipientUnwantedUnwanted
WantedWanted
cs+p
cr -p
r
s
W+
79© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipient UnwantedUnwanted
WantedWanted
cs+p
cr -p
r
s
W+
80© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipient UnwantedUnwanted
WantedWanted
cs+p
cr -p
r
s
W+
81© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Unsent
Recipient Payoff
For any particular distribution, the recipient can remove the sender incentive to send emails for which s < cs+p, while at the same time gaining p.
Positive payoff to recipient
Negative payoff to recipient UnwantedUnwanted
WantedWanted
cs+p
cr -p
r
s
W+
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Consider classes of good G and bad B senders .
95© 2006 Loder, Van Alstyne & Wash, all rights reserved.
GG
Distribution G
cr
r
s
cs
“Good”
W+
96© 2006 Loder, Van Alstyne & Wash, all rights reserved.
BB
Distribution B
cr
r
s
cs
“Bad”
W+
97© 2006 Loder, Van Alstyne & Wash, all rights reserved.
GG
G Sent with Attention Bond
cr
r
s
cs cs + pg
For each distribution, the recipient can choose a policy with a seize probability px
UnsentUnsentGG
W+
98© 2006 Loder, Van Alstyne & Wash, all rights reserved.
B Sent with Attention Bond
BB
cr
r
s
cs cs + pb
Unsent BUnsent B
For a mostly unwanted email distribution, the recipient is best off if they seize with a high probability (greater p product)
W+
99© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Welfare Basis - Attention Bond
BB
cr
r
s
cs
cs + pb
GG
cs + pg W+
100© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Welfare Basis - Perfect Filter
cr
r
s
cs
GG
BB
cs /b
Sent & FilteredSent & Filtered
cs /g W+
Sent & FilteredSent & Filtered
101© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Welfare Basis – Good & Bad E-Mail
BB
cr
r
s
cs
cs + pb
GG
cs + pg W+
Attention Bond
cr
r
s
cs
GG
BB
cs /b
Sent & FilteredSent & Filtered
cs /g W+
Sent & FilteredSent & Filtered
Perfect Filter
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
How about the perfect Pigouvian tax for heterogenous
senders & receivers?
108© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Interpreting Existing Solutions
cs
cs+ tax
r
Flat Tax, Stamps, Challenges, & Criminalization Penalties
lossUnwantedUnwanted
Unsent
loss
cr
SW+
s
cs
cs/n
r
FilteredWaste
Unsent
Filtering (all types)
Good mail blocked
Bad mailpassed
109© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Introduce Recipient Hetereogeneity
Two kinds of Senders, – G and B’s (GM & BMW cars, Girls & Boys, Green & Blue)– For T sender types, have (2T-1) who like any given subset.– The message prevalence is for G and (1-) for B
Three kinds of Recipients:– Type G Likes G’s messages– Type B Likes B’s messages– Type U Likes all messages– User prevalence is for G, for B, and (1- -) for U
WLOG, let welfare of G ≥ welfare of B transactions.Recipients can act strategically.
110© 2006 Loder, Van Alstyne & Wash, all rights reserved.
cs
cr
r
s
cs
cr
B
cr
r
s
cs
cr
GB
cr
r
s
cs
cr
G
GB
Type B RecipientsType G Recipients
Type U Recipients
Received value depends on match
- Value of match
- Value of mismatch
- Value of sum
111© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Total Baseline Welfare
))(1( rGsG crcs
))(1)(1( rBsB crcs
)()1()( rsrs cccc
All G transactions:
All B transactions:
Misdirected G & B mail:
If G and B senders mail the population, surplus from all G, B and U transactions is:
A tax is only effective when1. Waste from misdirected mail exceeds the value of B transactions2. Tax hits B senders first: (1-)sB – cs < (1-) sB – cs
cs
cr
r
s
cs
cr
B
cr
r
s
cs
cr
GB
cr
r
s
cs
cr
G
B
Type B RecipientsType G Recipients
Type U Recipients
Tax eliminates B senders and recipientstax
tax
G
- Value of match
- Value of mismatch
- Value of sum
cs
cr
r
s
cs
cr
cr
r
s
cs
cr
GB
cr
r
s
cs
cr
B
Type B RecipientsType G Recipients
Type U Recipients
The ABM facilitates targeting
G
- Value of match
- Value of mismatch
- Value of sum
116© 2006 Loder, Van Alstyne & Wash, all rights reserved.
ABM vs. Pigouvian Flat Tax
Pool Separate Results
{} {G}, {B}, {U} ABM Always
{U, G} {B} ABM Always
{U, B} {G} ABM Always
{B, G} {U} ABM Usually
{B, U, G} {} Tax Usually
Proofs of separating and pooling equilibria available in the paper.
117© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Bond vs. TaxPool Separate Results
{} {G}, {B}, {U} Bond
{U, G} {B} Bond
{U, B} {G} Bond
{B, G} {U} Bond†
{B, U, G} {} Tax†
†There exist specific exceptions. Proofs of separating and pooling equilibria available in the paper.
118© 2006 Loder, Van Alstyne & Wash, all rights reserved.
ABM
• Proposition: If recipient types choose distinct bond values, then the ABM results in first-best welfare.
• Intuition: No unnecessary costs from mistargetting, all transactions complete, separating equilibrium.
• Conditions: When bond values are low relative to message values– (test condition inequalities available)
119© 2006 Loder, Van Alstyne & Wash, all rights reserved.
ABM
• Proposition: If either bB or bG are distinct, then welfare under the ABM dominates that under a flat tax.
• Intuition: Choosing to pool internalizes the costs of mistargetting caused by pooling, else you could choose “limit bonds”
120© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Welfare Analysis
• Proposition: Social welfare under attention bonds exceeds that under a tax, unless type B recipients forgo B messages solely to poach G bonds.
• Intuition: If either {B} or {G} separate then targeting improves sufficient to improve welfare.
• If {B, G} pool, both must consent. G recipients can always separate by choosing a “limit bond.” – If B senders mail to a {G,B} pool, B transactions value must
exceed the waste. A tax destroys welfare.– If B senders do NOT mail to a {G,B} pool, mail from G to B
creates uncompensated waste. A tax improves welfare.
122© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Why Not Seize the Bond?
• First Contact Moral Hazard
• Releasing the bond is also a signal– Credibly distinguish your type in any pooling
equilibrium. In computer science vernacular, to separate yourself from a “honeypot.”
– Investment in reputation, Competition, Bi-directional communications, etc.
123© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Information Entering the Market
• Recipient: bond choice bi serves as a (weak) price signal of recipient type.
• Sender: posting bond bi serves as a credible signal of sender belief in a match.
• Recipient: For pooling equilibria, refund i =pibi is a credible signal of a match.
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Adoption, Infrastructure & Policy Issues
127© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Consider Advantages for Commerce:Direct Marketing
• Cheaper than traditional mail channels
• Receiver gets the benefit, not printer or mailer, no environmental waste.
• More information & preference feedback than TV, Radio, Snail Mail, or Magazines
• Lists are self-cleaning
128© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Consider Advantages for Users
When someone outside the ABM network 1st reaches someone inside, they get a challenge saying “adopt this and get”:
1. Your message delivered2. Your spam eliminated3. No need to do this again ever for anyone in the
network4. And a free bank account where marketers can drop
nickels.
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Rebuttals
134© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Obj: Great! I’ll set up a honeypot and retire.
Q: As a marketer, what’s your incentive to indiscriminately mail bonds to buyers in the presence of honeypots?
A: None. Rather you’ll target bonded messages to prospective buyers with the highest interest.
This is exactly what should happen. Forcing marketers to internalize the costs of wasteful messages causes them to produce less waste.
135© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Obj: If you can spoof it won’t work;if you can’t spoof you don’t need it.
• False on both counts.• If you can spoof, all messages
look like 1st contact.• If you can not spoof, do not
confuse (i) verifying an address with (ii) authenticating a useri. Cannot work (see “Social Cost of
Cheap Pseudonyms”).ii. Undesirable! You lose Pentagon
Papers, Watergate, Enron whistle- blowing, Halloween document… any free speech where the sender doesn’t want to be identified!
136© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Obj: Doesn’t risk limit free speech?
• Free speech is the only criterion on which no intervention beats bonds, filters and taxes.
• Perfect Filter: given 74% think political & non-profit speech is spam, much never gets through.
• Perfect Tax: always collected ex ante vs. 74% who collect under ABM – and always get through.
Would you want Yahoo!, AOL-Time-Warner, or Microsoft determining the content you receive?
The ABM is completely decentralized and content neutral; no one person, institution, or policy determines the content you hear. Legitimate senders face lower barriers than under filters or taxes.
137© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Obj: If 65% of spam is sent by infected zombies, fraud creates a user nightmare!
139© 2006 Loder, Van Alstyne & Wash, all rights reserved.
The FTC weighs in
140© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Address the problem before it starts!
• In economic terms, this is a moral hazard problem.
• Not bearing the costs of the waste their infected machines create, owners are insufficiently motivated (or able) to clean them.
• We need fraud protection…
Just like credit cards, ISPs can afford to offer say $5 insurance provided ISPs can keep users’ antiviral software up to date.
Attacks are detected faster. Virus propagation slows.
141© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Obj: If 65% of spam is sent by infected zombies, fraud creates a user nightmare!
• In economic terms, this is a moral hazard problem.
• Not bearing the costs of the waste their infected machines create, owners are insufficiently motivated (or able) to clean them.
• We need fraud protection…
Just like credit cards, ISPs can afford to offer say $5 insurance provided ISPs can keep users’ antiviral software up to date.
142© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Policy & Enforcement Issues
• Applicable to Do-Not-Call / Do-Not-Spam lists.• Need consumer fraud protection analogous to that for
Credit Cards• Severe penalties for spoofing and misuse of 3rd party IDs• Need escrow account clearing analogous to Automated
Clearing House (ACH) for checks• Need pro-competitive open standards• Need for privacy regulation on transactions• Boon to commerce: replace threat of communications veto
with option for fruitful exchange
143© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Additional Social Benefits
• Direct marketing– Cheaper than traditional mail channels– Receiver gets the benefit, not printer and mailer– Provides information feedback & self-cleaning lists– Avoids harmful reputation effects
• Recipients have reason to publish contact information, not hide it• Shifts arms race to crypto.• Permits communication otherwise filtered (e.g. political speech)• Allows anonymous and whistleblower communication not possible with
strong identity systems.• Tailors to an individual’s unique preferences.• Reclaims the value of your address for you rather than the marketers. • Helps you get off any list you don’t want to be on.
144© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Conclusions• Screening action of bond forces senders to reveal their
intentions.• Bond size & seizure functions as signal to senders.• Creates possibility of greater trade volume, with both
parties wanting to participate -> win-win communication.• Facilitating wealth transfers benefits readers more than
unilateral veto. Can beat a Perfect Filter & Perfect Tax.• Shifts the arms-race to crypto• Content neutral and decentralized with respect to free
speech. • Returns control of the mailbox to its owner• Can reduce spread of viruses and spam zombies
145© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Concluding Remarks• Define “spam” as information pollution.• Property rights then provide price signals and let one side
purchase a fraction of the other side’s call externality.• Revealed information can potentially include (i) recipient
type (ii) sender type (iii) successful 3rd party match (not modeled).
• Taxes and filters, in contrast, block communication and provide no information to the market. Filters offer no side-payments.
• Side-payments can cause recipients to act strategically.• Combined with a 2-sided insurance market, can reduce
spread of viruses and spam zombies
146© 2006 Loder, Van Alstyne & Wash, all rights reserved.
Questions?
For further info see:1. “An Economic
Response to Unsolicited Communication,” Loder, Van Alstyne, Wash. http://bepress.com
2. Popular article – on request.