Economic assumptions

I just read (after a reference by Duncan Frissell on this list) an
essay by Nobel-prize economist R. H. Coase.  The essay is called "The
Nature of the Firm".  I have it in a collection called _The Firm, the
Market, and the Law_, published by University of Chicago Press.

This is a sure-fire antidote to the idea that "the market is the best
solution for everything".  This is the essay, evidently, that
introduced the idea of transaction costs.  Some of his basic points
are the following:

-- There is a cost to using the price mechanism.
-- Not all economic allocations use the price mechanism.
-- Firms exist because they have lower transaction costs than the market.

I can imagine that bandwidth in the fibersphere for text transmission
will be too cheap to meter, which means that the cost of metering
would more than the marginal revenue.  In this case, and this is not
the near future, there aren't any delivery charges per message.

Suppose 5 billion people are all typing continuously at 300 bps.
That's 1.5 Tbps, certainly within the conceivable for a single
transmission line.  So that's everything everyone in the world types,
delivered at flat rate to your computer.  

The assumption of scarcity for bandwidth, while true now, may not
generalize to the future.  We should also not assume that every
commons is subject to the tragedy of overuse.

Eric

Eric Hughes writes:

> I can imagine that bandwidth in the fibersphere for text transmission
> will be too cheap to meter, which means that the cost of metering
> would more than the marginal revenue.  In this case, and this is not
> the near future, there aren't any delivery charges per message.
> 
> Suppose 5 billion people are all typing continuously at 300 bps.
> That's 1.5 Tbps, certainly within the conceivable for a single
> transmission line.  So that's everything everyone in the world types,
> delivered at flat rate to your computer.  
> 
> The assumption of scarcity for bandwidth, while true now, may not
> generalize to the future.  We should also not assume that every
> commons is subject to the tragedy of overuse.

Ah, but the issue of mail overload is _rarely_ caused by what a person
can personally type! Rather, by the _forwardings_ of other masses of
stuff, written by others. "MAKE.MONEY.FAST" is but the most recent
example. Not to mention images, coredumps, etc.  (There's a guy on
Netcom who, interestingly, sets his "plan" file to be redirected to a
file called "/vmunix," which apparently dumps a nearly unending stream
of stuff onto one's screen.)

If data delivery is free, then what will the service providers (be
they PacBell, Yoyodyne Enterprises, or (ugh) the government) do when I
choose to take whatever bandwidth I can get and simply _fill_ it.
After all, if it's "free" and "unmetered," then I can fill it to
capacity (if I can). Or will there be quotas?

(If the answer is "No fees, no quotas, use as much as you can," then I
maintain it will be relatively easy to continue to flood sites. Flood
them worse than anything we've seen so far, in fact. I'll go out on a
limb and speculate that cheap delivery makes a fee schedule of some
sort _more important_, not less important. Of course, this is up to
the service providers; anyone who wishes to provded a free bandwidth
link should be free to do so!)

I was always skeptical of George Gilder's "fibersphere" assertions,
that the fibers will be mostly "dark" because of a shortage of things
to say, for example, and that usage would be "too cheap to meter."
(Hmmmhh, where have I heard _that_ before?)

Things will get much cheaper, that's for sure, but never free. (This
is not an ideological statement, but a practical statement, in my
view.)

I can think of certain malicious persons--and I expect more of them in
the future, not fewer--who would mount "denial of service" attacks on
sites they didn't like by turning the firehoses of data on them.

Of course, I expect sites to be able to refuse delivery without being
charged, so clever mail-filtering agents will be essential.

TANSTAAFL--There Ain't No Such Thing As A Free Link


--Tim May


-- 
..........................................................................
Timothy C. May         | Crypto Anarchy: encryption, digital money,  
tcmay@netcom.com       | anonymous networks, digital pseudonyms, zero
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W.A.S.T.E.: Aptos, CA  | black markets, collapse of governments.
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"National borders are just speed bumps on the information superhighway."

> I can imagine that bandwidth in the fibersphere for text transmission
> will be too cheap to meter, which means that the cost of metering
> would more than the marginal revenue.  In this case, and this is not
> the near future, there aren't any delivery charges per message.


that is what Tom Edison said about electrity....

Evil Pete says:
> > I can imagine that bandwidth in the fibersphere for text transmission
> > will be too cheap to meter, which means that the cost of metering
> > would more than the marginal revenue.  In this case, and this is not
> > the near future, there aren't any delivery charges per message.
> 
> 
> that is what Tom Edison said about electrity....

Actually electricity too cheap to meter was an idiotic comment made
about nuclear power in the 1950s. However, I'll point out that its
been some years since I noticed the cost of my electric bill. Now,
admittedly, I'm a fairly well off person, but were my communications
costs for a very wide band fiber connection, even if usage based, as
low as that for my electric usage, I would never notice the cost.

Perry

>
>Evil Pete says:
>> > I can imagine that bandwidth in the fibersphere for text transmission
>> > will be too cheap to meter, which means that the cost of metering
>> > would more than the marginal revenue.  In this case, and this is not
>> > the near future, there aren't any delivery charges per message.
>> 
>> 
>> that is what Tom Edison said about electrity....
>
>Actually electricity too cheap to meter was an idiotic comment made
>about nuclear power in the 1950s. However, I'll point out that its
>been some years since I noticed the cost of my electric bill.

My electric bill averages around $200 to $250


		-Pete

>> I can imagine that bandwidth in the fibersphere for text transmission
>> will be too cheap to meter, which means that the cost of metering
>> would more than the marginal revenue.  

[re: overload]
>Rather, by the _forwardings_ of other masses of
>stuff, written by others. "MAKE.MONEY.FAST" is but the most recent
>example. Not to mention images, coredumps, etc.  

I only talked about text transmission, not about arbitrary bit
transmission.  The situation for automatic bit sources is not the
same.

>I'll go out on a
>limb and speculate that cheap delivery makes a fee schedule of some
>sort _more important_, not less important. 

Look, there is a cost to using the price mechanism.  When the cost of
the thing being purchased becomes too small, it's no longer economical
to price it.  That doesn't mean that it's free.  It means there are
other structures for accounting.

One transaction per packet will almost always be more overhead than
it's worth.  There are other ways of paying for service, though, by
connection, by total bandwidth, by link.  The structure of the
transaction is different, because a different thing is being
purchased.

Flat rate local phone calling is common.  The expensive part of using
a local phone switch is the switching, not the connection.
Maintaining the connection is cheap.

>Of course, this is up to
>the service providers; anyone who wishes to provded a free bandwidth
>link should be free to do so!)

This is irrelevant.  The Libertarian-PC police aren't around, last I
looked.

Tim made the statement that pay-as-you-go was the obvious choice.
That's not at all obvious.  The accounting mechanisms are but one
aspect of the transaction costs involved.  It is quite possible that
the only economically viable communications services are aggregated
services.  Whenever you have aggregation, there is some persistence,
and that yields an identity.  (It need not be a personal identity.)

There are some interesting questions here.  What is the characteristic
length of that persistence?  It will vary depending on the cost to do
another transaction.  The length of persistence is the length of
exposure of an identity.  What are the forseeable tradeoffs between
link costs, switching, and general-purpose computing?  This gives some
idea about where the bounds of accounting will fall.

Analyses which disregard transaction costs are unrealistic.  The
question is not one of paying for service; let's bury this libertarian
hype against socialism right now.  The question is what the structure
of the communications market, both buyers and sellers, will be.

I want a system with low transaction costs, because that lowers the
characteristic persistence time of a communications transaction, and
the smaller the time, the better the privacy.  That means we have to
lower the transaction costs.

Let's take remailers as an example.  One current suggestion is to add
some sort of money system to the remailers as a condition of use.
This is exactly the wrong priority at the current time.  The remailers
are already hard enough to use, and adding a payment system on top of
that will make them used even less.  Making a system harder to use
increases the transaction cost.

The current priorities should be to lower these costs.  When the
remailer system begins to be overloaded, then adding some restriction
on use, perhaps by means of payment or a payment analogue, will be
warranted, because it will lower overall transaction costs, trading
off ease of use for throughput and reliability.

What are some of these costs that should be lowered?

-- Finding out that remailers exist and what they do.
-- Finding a remailer to use.
-- Deciding what remailer to use.
-- Figuring out how to use a particular remailer.
-- Formatting a message for a remailer.
-- Receiving mail through a remailer.

There much more need for improving the ease of use of remailers than
for paying for them.

The less expensive privacy is, the more privacy there will be.
Privacy has non-linear benefit; the more that people are private, the
better any individual's privacy actually is.

Eric