: Mr Rogers on Externalities

[David Farber <dave () farber net>]

________________________________________
From: Seth Finkelstein [sethf () sethf com]
Sent: Sunday, March 23, 2008 2:59 PM
To: David Farber; ip
Subject: Mr Rogers on Externalities

[Note, I didn't write this, Nick Weaver wrote it - it's a
counter-argument to ""Captain Kangaroo" on File Sharing"]

# From: "Nick Weaver" <nweaver () gmail com>
# Date: Sat, 22 Mar 2008 22:13:31 -0700

Its a beautiful day in this network neighborhood, a beautiful day in
this neighborhood...

Hi neighbor.  Glad we could be together again.

Today we are going to talk about externalities.

Now, I know when you walk your dog, you are happy to let little Mr
Tinkel wander around this beautiful neighborhood, smelling the
lamppost and barking at other dogs.  And when Mr Tinkel does his
business on someone else's lawn, well, someone has to clean it up.  If
you clean it up, you're doing the right thing.  You're being
responsible.  Bob Dog does the same.

But if you leave that little present from Mr Tinkel on your neighbor's
lawn, now someone else has to clean it up.

This is called an "Externality".  A big word which means your action
has a negative effect on others.  Thus King Friday XIII has to pay X
the Owl to clean up Mr Tinkel's little gifts, and the rest of
neighborhood suffers.

Now I notice you are getting a lot of packages from Mr Torrent's
delivery service sent to your house, using it to share stuff with
friends around the world instead of having your deliveries from Mr.
McFeely.

If its your stuff which you are sharing, Mr Torrent saves you money.
Lets say that Mr Torrent says "I will save you $1 when you want to
share this with everybody, because you will no longer have to pay Mr.
McFeely to deliver this stufff".

You would say "sure".  But what if Mr Torrent, in saving you $1, takes
a dime from 500 people? [1]

Well, to you, this doesn't matter.  Mr Torrent has helped you, and you
saved a dollar.  But to society as a whole, Mr Torrent cost everybody
else $49.  This is an externality.

So you understand why the people who's dimes are stolen are naturally
mad at Mr Torrent, and would want him to go away?  Especially when he
promises to deliver stuff for thousands of people?

Now lets say you are getting stuff from Mr Torrent.  Mr Torrent has a
lot of connections, and can deliver it to you very quickly by using
lots of trucks.  But in the process, he cloggs the roads for everybody
else, because each truck causes its own bit of congestion, and he also
sends twice as many trucks as Mr. McFeely to move the same amount of
stuff.

Your stuff gets there, but everyone else sees a traffic jam and gets
stuck in traffic [2].  So you understand why the people in charge of
the roads want special traffic lights to reduce the number of trucks
Mr Torrent can place on the road?  Again, this is an externality.

Now I'm not saying "Don't Use Mr Torrent".  Mr Torrent can save YOU
money when shipping your stuff around, and get you stuff really fast.
He's good at that.  For you, he is cheaper and faster than Mr.
McFeely.


But don't be suprised when those who are responsible for the roads Mr
Torrent is clogging, and those who's dimes Mr Torrent is stealing,
decide to act against Mr Torrent.

This could be as simple as putting Mr Torrent's trucks onto a country
road away from the other traffic, placing spike-strips in the path of
his deliery trucks, or charging you for the extra trucks Mr Torrent
sends from your house.  Or it could be simply using a rocket launcher
to blow up Mr Torrent's and if an occasional car gets hit by shrapnel,
those who own the roads say 'oh well, thats the breaks, we'll just buy
off the police'.


The lesson is simple: externalities create conflict.  Especially
inefficient externalities, that is, the cost you impose on others is
significantly more than the benefit you receive.  So now you
understand, neighbor, how externalities can cause neighbors to dislike
each other.

In the end, I believe the best way to deal with externalities is to
shift the costs back to a responsible party, often with the costs
magnified to make the effect clear.

So please pick up after Mr Tinkels, unless you want a flaming gift bag
courtesy of Lady Elaine Fairchilde on your porch.

Thank you Neighbor.




[1] If you believe Brett Glass's numbers that bandwidth to a retail
ISP costs $100/Mbps/month, but to a colo it costs $2/Mbps/month, and
the bulk P2P program is perfectly symmetric (no extra uploading/work),
its exactly a 50-1 magnification in aggregate cost.  This is an
unavoidable externality as long as bandwidth costs to a retail ISP are
significantly greater than bandwidth costs to a colo facility.  Even
assuming 10x rather than 50x, the math for bulk P2P is awful: it costs
the system $10 for every $1 saved.

And as it costs 100x to send 1 fiber to 100 places, but 1x to send 100
fibers to 1 place, this externality will amost certainly remain.

[2] Again, this is unavoidable if the bulk-data P2P program uses
multiple TCP connections and isn't really REALLY clevel about doing
congestion control.  And as such would reduce the performance of the
P2P app, there is no real incentive for the P2P programs to do such
things anyway.

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