Message from a Parallel Universe

[Tim May]

At 7:26 PM -0400 4/15/01, Declan McCullagh wrote:
>On Sun, Apr 15, 2001 at 07:26:24PM -0700, Tim May wrote:
>>  And my point is a very serious one: saying that "anarchy" cannot work
>>  in markets is not much different from saying anarchy (uncoerced
>>  transactions) cannot work in areas where in fact uncoerced
>>  transactions are the _norm_.
>
>Right. It's like telling a statist that certain government programs
>and regulatory systems aren't absolutely necessary. Their initial
>reaction is to disbelieve this notion: "But how would it work?"
>
>To phrase Tim's point another way, taking some liberties: If there is
>sufficient market demand for a product or service, it will become
>available, whether or not the government regulates it, encourages it,
>or prohibits it. If we knew tomorrow that copyright law would
>disappear in 10 years, the market would move to continue a system
>where new content would be available -- the incentives are too strong
>to ignore.
>
>Obviously ease of avoiding regulation and technological
>advances aiding reputational systems are big variables too.

Like I've said recently (and years ago, too), the "economics of black 
markets" is an interesting topic. One could even take out the "black" 
loaded term and just refer to economics of markets, except that then 
sounds like ordinary Econ 101.

An agent typically undertakes/completes a transaction when:

Benefits > Costs

or, elaborating, when:

[Perceived benefits] > [Perceived costs] plus some epsilon for hassle/effort

(This can be puffed out, or term re-written, with various subterms 
reflecting actual prices, risks, costs of money, criminal penalties, 
chance of detection, etc. I did this some years back, but don't have 
the time right now to track down my article or to rewrite it. I hope 
most readers get the picture and can fill in the blanks themselves. 
Probably more useful to do that.)

"Perceived benefits" has the usual meaning. The agent may be wrong in 
his calculation or estimate, but it is for him to make the best 
overall estimate of what he can get out of the transaction. Perhaps 
by using the thing he buys, perhaps by selling it to another, 
whatever.

"Perceived costs" are likewise his estimates of actual monetary cost, 
risks to him (imprisonment, defection, bad deals) in the transaction, 
etc. Into this side of the equation will go the possible law 
enforcement issues. And maybe even "psychic costs" for buying 
something illegal or unethical.

This is the sense in which black markets are simply markets. The 
"costs" of being in the black market are simply more terms on the 
cost side. Nothing new here, as black markets have been the norm in 
most societies at most times, with the local thugs collecting some 
percentage, etc.

For example, in the Napster case the actual monetary costs of 
downloaded songs were zero (lacking MojoNation kinds of mechanisms). 
The cost was partly bandwidth and sitting around waiting for 
Metallica songs to download. There was also some slight cost to some 
students at universities who were sanctioned for their Napster 
habits. There was no "criminal cost," at least for the downloaders.

As another example, illegal drug users may put much heavier emphasis 
on the criminal costs, i.e., the risk that they will be caught and 
prosecuted, blah blah.

There are also the reputational issues such as we've been discussing. 
These show up in the cost side as risks, actual costs to check credit 
ratings, etc.

But still the Basic Equation stands:

Benefits > Costs

What Napster did was to alter several terms in the equation. What 
cypherspace offers for, say, porn trading rings is the same thing.

Claims that transactions will simply "not happen" if some parts of 
the equation get murkier than they might otherwise be are not 
convincing.

Markets clear, and cypherspace will change the terms in the equation 
but not the equation itself.


--Tim May
-- 
Timothy C. May         tcmay at got.net        Corralitos, California
Political: Co-founder Cypherpunks/crypto anarchy/Cyphernomicon
Technical: physics/soft errors/Smalltalk/Squeak/agents/games/Go
Personal: b.1951/UCSB/Intel '74-'86/retired/investor/motorcycles/guns