Docstoc

An Economic Solution to Spam

Document Sample
An Economic Solution to Spam Powered By Docstoc
					      An Economic Response to
      Unsolicited Communication
Thede Loder Marshall Van Alstyne              Rick Wash
  University of    Boston University & MIT     University of
   Michigan                                     Michigan
tloder@umich.edu        mva@bu.edu           rwash@umich.edu
                      marshall@mit.edu
                          2
© 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.

                                          4
                © 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)
                                                 5
                       © 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
                                         10
                © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Problems with Existing Solutions
       Legislation                                               Technologyy

• Whose spam definition?                          • Filtering (Rules, Collaborative,
• Banning and labeling                              Bayesian):
   – Enforceability, jurisdiction?                      – False positives, false negatives
   – Costly to police and adjudicate                    – Increases spam email traffic
                                                          (attempts to penetrate)
   – Labeling lacks incentive
     compatibility                                      – Costly arms-race
   – Exemptions for prior biz                           – Consensus definition
     relations, political groups                        – Blocks automated
• Taxing & e-stamps                                       correspondence
   – Blocks wanted along with                     • Challenge-Response (Reverse
     unwanted email                                 Turing Tests)
   – Blunts cost-effectiveness of                       – Cheaply hire real people
     email as medium                                    – Unrecoverable costs

                                             12
                    © 2006 Loder, Van Alstyne & Wash, all rights reserved.
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
    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.




                         17
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
                          Filter vs. Filter
                                                                   berkshire
                                                                   marriott
                                                                   wireless




© 2004 John Graham-Cumming “How to beat an Adaptive Spam Filter”
Warning: risqué!




© 2006 Loder, Van Alstyne & Wash, all rights reserved.
   Where is “v1@grya” or
<naughty-body-part> ever used?



   “… get a rod like a firehose.”




                               20
      © 2006 Loder, Van Alstyne & Wash, all rights reserved.
   Where is “v1@grya” or
<naughty-body-part> ever used?




                              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.
What is spam?




© 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 …




                                        28
               © 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.
    Nobel 1991 – “for his discovery and
     clarification of the significance of
transaction costs and property rights for the           Regardless of initial assignment, the
  institutional structure and functioning of            social outcome is at least as efficient.
                 the economy.”


                     No unilateral solution can do better.
                                                   29
                          © 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.
                                            30
                   © 2006 Loder, Van Alstyne & Wash, all rights reserved.
    Terminology & Assumptions
• [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.



                                          32
                 © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                           Modeling Email Value
Examples:                                                                                   Examples:
- personalized loan app                            r                                        - project update from colleague
- custom news
                                                                                s           - long lost high school buddy
- subscription content                                                               r      - friend’s wedding announcement
- sales leads                                                                               - shipping update from vendor
                                       Wanted but
- Google Answers                                                 Wanted                     - recruiting lead from a friend
                                        Not Sent
- credit score                                                                              - favorable press story
                                                                                         cr = cost to receive
                                                                                         s
                                    Unwanted and
                                                             Unwanted
Examples:                             Not Sent                                              Examples:
- embarrassing news sent                                                                    - market research & focus groups
      to wrong person                                                                       - polling
- old news                    r                                                             - persuasion, “vote for X”
- accidentally telling your boss   s                   cs = cost to send                    - pornography
      what you really think                                                                 - message with attached virus
                                                                                            - phishing, Nigerian scam
                                                            39                              - key logger, password stealer
                                   © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Specific modeling assumptions are
       r
             robust
                                s
                                         r         cs = cost to send
                                                   cr = cost to receive

                                             cr
                                             s



r
    s   cs                                            region of positive probability


                                    40
         © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Social Welfare Contribution
    r
                                                    Welfare (W) = RS + SS

                                                    RS = Recipient Surplus
                                                    SS = Sender Surplus

                                           cr       Received email northeast of the diagonal
                                                    line makes a positive contribution to
                                           s        social welfare


                                                           positive contribution to W

                                                           negative contribution to W
                                        W+
        cs
                                      45
             © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Interpreting Existing Solutions
 Flat Tax, Stamps, Challenges,                              Filtering (all types)
  & Criminalization Penalties
           r                                                       r



            loss                                                                               Good mail
                                                                                                blocked
                                                                                                  cr
 Unsent                                                Unsent
                                                                                                  s    Bad mail
                                                                                                        passed
                    Unwanted                                                        Filtered
            loss                                                                     Waste



                cs+ tax                                                      cs/n               SW+
           cs                                                          cs

                                             47
                    © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                         Perfect Filter
         r
                                                        Definition
                                                        A technological filter that:
              loss     Wanted                               Operates without cost
                                                            Makes no mistakes (no false
Unsent
                                           cr                positives, no false negatives)
                                                            Intuits and internalizes all
                                                             reader preferences
                       Filtered                             Eliminates, prior to receipt,
             gain
                                                             any email where r < cr

                                                        Not all filtered email is waste!
                  cs/                    W+
             cs
                                                54
                     © 2006 Loder, Van Alstyne & Wash, all rights reserved.
       With a Perfect Filter
     A Lot of Value is Wasted
         r
                                                         A perfect filter:
                                                            Operates without cost
 UnSent &                                                   Makes no mistakes (no false
  Wanted
                      Wanted                                 positives, no false negatives)
                                                            Discards any email where r < cr
Unsent
                                            cr
                          Sent &
                          Filtered                       But a filter:
                                                             Allows no negotiation
                                                             Never helps generate new
                    Sent &                                    content you do want
                  Pure Waste                                 And can’t transfer value from
                                                              legitimate senders

             cs                            W+                    = unrealized positive value
                                                 55
                      © 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.

                                         56
                © 2006 Loder, Van Alstyne & Wash, all rights reserved.
  Problem: How do you reveal
information without negotiation?




        © 2006 Loder, Van Alstyne & Wash, all rights reserved.
           Signaling & Screening
    Akerlof            Spence
                                                     Signal: information conveyed
                                                     by a knowledgeable party that
                                                     is credible because it is costly
                                                     to fake.

                                                     Screen: a device used by
                                                     uninformed parties to sort
            Stiglitz                                 others in the market by
Nobel 2001 –“for their
                   analyses of                       offering them different
   markets with asymmetric                           options. A choice reveals the
        information”
                                                     hidden private information.

The right spam mechanism sorts based on intent not content.
                                                62
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
    Consider an “Attention Bond”
Initially, the sender knows more about message content than the receiver, so force
                       them to reveal that private knowledge:




•   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 behavior
    2. Shift task from ex ante classification (hard) to ex post verification (easy).
    3. Compensates recipient directly for any wasted time


                                               63
                      © 2006 Loder, Van Alstyne & Wash, all rights reserved.
       Consider an “Attention Bond”
     If the sender knows more about message content than the receiver, force him to
                            reveal that private knowledge:




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).



                                                      64
                             © 2006 Loder, Van Alstyne & Wash, all rights reserved.
       The ABM in Action
                                     $
                                     $
                                                                     A
   A




                  A                                      N




  M    C                             MC                             MM




Recipient’s mailmailissues notification of bond receipt
  Recipient’sSender claimsdelivers delivered
   SendernotSender server is abondoriginal issued
     The challenge initiates postedauthorization
        Sender on issues bond-challenge message
         Sender server issues message
              onThe bond bond or delivery
                 The bond attempts
    or …and Mail Whitelist, mail the it expire.
       the Escrow is delivered to lets
                 whitelist,       authorization
  Sender RecipientServer is returned Sender…
                                    65
           © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Warning: economics!




  © 2006 Loder, Van Alstyne & Wash, all rights reserved.
   The Reader’s choice of bond
Reader Surplus defined:



Optimal expected bond:




Reader Surplus:




Always:

                                            69
                   © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                  The Perfect Filter
Perfect Filter:                                   Send if:




Reader Surplus defined:




Reader Surplus:




                  Bonding wins if:

                                             70
                    © 2006 Loder, Van Alstyne & Wash, all rights reserved.
   Social Planner’s choice of bond
Welfare defined:



Optimal bond:



Always:


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.
                                              71
                     © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Choosing the expected bond size
            b = p.




        © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
For any particular distribution,
the recipient can remove the
sender incentive to send emails
for which s < cs+p, while at the                                                Wanted
same time gaining p.                                                                      cr
                                                           Unsent
                                                                                           s
      Positive payoff to recipient                                              Unwanted

      Negative payoff to recipient

                                                                                           W+
                                                                          cs
                                                73
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
For any particular distribution,
the recipient can remove the
sender incentive to send emails
for which s < cs+p, while at the                                                Wanted
same time gaining p.
                                                                                           cr -p
Now transfer p where p >0,  > 0
                                                            Unsent
                                                                                           s
      Positive payoff to recipient                                              Unwanted

      Negative payoff to recipient


                                                                          cs+p
                                                                                           W+

                                                74
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
For any particular distribution,
the recipient can remove the
sender incentive to send emails
for which s < cs+p, while at the                                                 Wanted
same time gaining p.

         p increasing…
                                                              Unsent                       cr -p

      Positive payoff to recipient                                              Unwanted
      Negative payoff to recipient


                                                                          cs+p
                                                                                           W+

                                                75
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
For any particular distribution,
the recipient can remove the
sender incentive to send emails
for which s < cs+p, while at the
                                                                                    Wanted
same time gaining p.

         p increasing…
                                                               Unsent
                                                                                              sr -p
                                                                                              c

      Positive payoff to recipient
                                                                                   Unwanted
      Negative payoff to recipient


                                                                                cs+p
                                                                                              W+

                                                76
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
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.                                                              Wanted

         p increasing…
                                                                Unsent
                                                                                             s
                                                                                             cr -p
      Positive payoff to recipient
                                                                                  Unwanted
      Negative payoff to recipient


                                                                                cs+p
                                                                                             W+

                                                77
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
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.                                                              Wanted
                                                                 Unsent
                                                                                             s
                                                                                             cr -p
      Positive payoff to recipient
                                                                                  Unwanted
      Negative payoff to recipient


                                                                                cs+p
                                                                                             W+

                                                78
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
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.
                                                                                  Wanted
                                                                   Unsent
                                                                                            s
      Positive payoff to recipient
                                                                                            cr -p

      Negative payoff to recipient                                               Unwanted


                                                                                cs+p
                                                                                            W+

                                                79
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
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.
                                                                                 Wanted
                                                                    Unsent
                                                                                           s
      Positive payoff to recipient                                                         cr -p
      Negative payoff to recipient                                              Unwanted


                                                                                cs+p
                                                                                           W+

                                                80
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                    Recipient Payoff
                                                                      r
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.
                                                                                  Wanted
                                                                     Unsent
                                                                                            s
      Positive payoff to recipient
                                                                                            cr -p
      Negative payoff to recipient                                               Unwanted

                                                                                cs+p
                                                                                            W+

                                                81
                       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Consider classes of good G and
       bad B senders .




       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
 Distribution G
                       r

                                                         “Good”


                                    G
                                                         cr
                                                         s



                                                         W+

                           cs
                         95
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
 Distribution B
                       r



                                                         cr
                                                         s
                                     B
                                                          “Bad”




                                                         W+

                           cs
                         96
© 2006 Loder, Van Alstyne & Wash, all rights reserved.
        G Sent with Attention Bond
                                                  r


                                                Unsent
                                                  G                 G
                                                                                    cr
                                                                                    s

For each distribution, the recipient
can choose a policy with a seize
probability px
                                                                                    W+

                                                      cs       cs +
                                                    97         pg
                           © 2006 Loder, Van Alstyne & Wash, all rights reserved.
        B Sent with Attention Bond
                                                   r



                                                                                     cr
                                                                                     s
                                                       Unsent B             B
For a mostly unwanted email
distribution, the recipient is best
off if they seize with a high
probability (greater p product)
                                                                                     W+
                                                       cs         cs + pb
                                                     98
                            © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Welfare Basis - Attention Bond
                              r


                                                G
                                                                cr
                                                                s
                                                       B


                                               cs + pb
                                                                W+
                                     cs + pg
                                  cs
                                99
       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Welfare Basis - Perfect Filter
                              r


                                                G

                                                       B        cr
                                        Sent & Filtered
                                                                s
                                                  Sent & Filtered




                                     cs             cs
                                                                W+
                                     /g            /b
                                  cs
                               100
       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Welfare Basis – Good & Bad E-Mail
 Attention Bond                                                Perfect Filter
       r                                                                  r


                                                                                         G
                      G                                                                           B
                                       cr                                                             cr
                                                                                   Sent & Filtered
                                       s                                                              s
                           B                                                              Sent & Filtered




                   cs + pb                                                    cs            cs
                                      W+                                                              W+
            cs + pg                                                            /g           /b
           cs                           101
                 © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                                                                              cs
    How about the perfect
Pigouvian tax for heterogenous
     senders & receivers?




       © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Interpreting Existing Solutions
 Flat Tax, Stamps, Challenges,                              Filtering (all types)
  & Criminalization Penalties
           r                                                       r



            loss                                                                               Good mail
                                                                                                blocked
                                                                                                  cr
 Unsent                                                Unsent
                                                                                                  s    Bad mail
                                                                                                        passed
                    Unwanted                                                        Filtered
            loss                                                                     Waste



                cs+ tax                                                      cs/n               SW+
           cs                                                          cs

                                            108
                    © 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.
                                          109
                  © 2006 Loder, Van Alstyne & Wash, all rights reserved.
          Received value depends on match
              r cs                                                             r cs

                     B                                                                  G

cr                                       cr             cr                                        cr
          G                              s                                 B
                                                                                                  s

                                              r cs
                                                             G
                                                                                   Type G Recipients
Type B Recipients                                B
                         cr                                                  cr
                                                                             s
                                                                                      - Value of match
     Type U Recipients                                                                - Value of mismatch
                                                                                      - Value of sum
                                                  cs
                                                  110
                          © 2006 Loder, Van Alstyne & Wash, all rights reserved.
            Total Baseline Welfare
If G and B senders mail the population, surplus from all
G, B and U transactions is:

All G transactions:

All B transactions:

Misdirected G & B mail:


A tax is only effective when
   1. Waste from misdirected mail exceeds the value of B transactions
   2. Tax hits B senders first: (1-)sB – cs < (1-) sB – cs
                                              111
                      © 2006 Loder, Van Alstyne & Wash, all rights reserved.
        Tax eliminates B senders and recipients
              r cs                                     r cs tax
                                                                  G
                     B
cr                            cr          cr                             cr
          G                   s                    B
                                                                         s

                                   r cs tax
                                               G
                                                          Type G Recipients
Type B Recipients                    B
                         cr                        cr
                                                   s
                                                             - Value of match
     Type U Recipients                                       - Value of mismatch
                                                             - Value of sum
                                     cs
                   The ABM facilitates targeting
            r cs                                 r cs
                                                          G
                   B
cr                          cr          cr                          cr
                            s                                       s

                                 r cs
                                             G
                                                      Type G Recipients
Type B Recipients                 B
                       cr                        cr
                                                 s
                                                        - Value of match
     Type U Recipients                                  - Value of mismatch
                                                        - Value of sum
                                   cs
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.
                                        116
                © 2006 Loder, Van Alstyne & Wash, all rights reserved.
                          Bond vs. Tax
          Pool                         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.
                                               117
                       © 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)
                                         118
                 © 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”

                                     119
             © 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.
                                          120
                  © 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.

                                       122
               © 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.


                                    123
            © 2006 Loder, Van Alstyne & Wash, all rights reserved.
Adoption, Infrastructure & Policy
             Issues




         © 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

                                     127
             © 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 delivered
    2. Your spam eliminated
    3. No need to do this again ever for anyone in the
       network
    4. And a free bank account where marketers can drop
       nickels.

                                      128
              © 2006 Loder, Van Alstyne & Wash, all rights reserved.
          Rebuttals




© 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.
                                          134
                  © 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 user
                                  i. 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!


                                  135
          © 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.
                                         136
                 © 2006 Loder, Van Alstyne & Wash, all rights reserved.
 Obj: If 65% of spam is sent by infected
zombies, fraud creates a user nightmare!




                                  137
          © 2006 Loder, Van Alstyne & Wash, all rights reserved.
The FTC weighs in




                         139
 © 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.

                                         140
                 © 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.



                                         141
                 © 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

                                        142
                © 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.


                                                 143
                         © 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

                                        144
                © 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

                                         145
                 © 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.

                        146
© 2006 Loder, Van Alstyne & Wash, all rights reserved.

				
DOCUMENT INFO
Categories:
Tags:
Stats:
views:3
posted:5/15/2012
language:English
pages:83