On Wed, 5 Jun 1996, Nick Szabo wrote:
Some electronic commerce projects promise dramatically lower transaction costs, so that we can achieve "micropayments", "microintermediation", and so forth. Is this achievable?
Well let me chip in on this. First, my Web site at http://www.sims.berkeley.edu/resources/infoecon/Commerce.html has links to lots of the relevant resources. I think that there are really two accounting models that are being discussed. One is centralized accounting, a la the phone company. The other is what I call "distributed accounting". Models for distributed accounting are postage stamps/meters, and cash. In the distributed accounting model, individuals get tokens (stamps, coins, dollars, BART cards, phone cards, etc.) and keep track of their own usage. This form of accounting is ideally suited to micropayments. You may lose your BART card, or your dollars, but that risk is borne by the user. As Stefan pointed out, micropayments can add up in a big organization. But in the distributed accounting case, it is the organization's responsibilty for managing these payments. Indeed, most organizations have strict policies about petty cash, postage stamps, etc for just this reason. Centralized accounting is much more open-ended. Here the risk of non-payment is often partially borne by the provider and partially by the user. This form of payment is typically used for repeated purchases where reputation/credit-worthiness plays a big role. Hal Varian, Dean voice: 510-642-9980 SIMS, 102 South Hall fax: 510-642-5814 University of California hal@sims.berkeley.edu Berkeley, CA 94720-4600 http://www.sims.berkeley.edu/~hal