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IGCBP: ecommerce, trust and security. Spam, commons and externalities

Diplo Internet Governance Capacity Building Programme (IGCBP) tutor Marsha Guthrie shares with us some interesting exchanges from her classroom, where the first two comments below relate to e-commerce:

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It is very important for the Caribbean to be able to have a robust and secure system for ecommerce to develop, but when I read reports (like the news item published today) that say the US, which is the most connected country actually has relatively weak cyber security, it seems like a difficult task. It says that the government will need to become involved and talks about the Obama’s administration renewed focus on this issue. Although government involvement signals profitable contracts for cyber security companies (a point not forgotten on the private sector’s part) I also think that governments will need to become involved in this by working with the private sector. This is applicable not only in the US but also in the Caribbean, where security can help boost and improve the e commerce industry. (Participant A)


Participant B's response to this comment is below.

I would suggest looking at e-commerce in terms of economic development (i.e. extending local markets through virtualized trade). For e-commerce to be successful, the focus needs to be on trust. And this trust is a two-way street. Consumers must trust the merchant with whom they are conducting business. This can be achieved through SSL encrypted transactions and digital certificates to serve as proof of the identity of the merchant. Merchants need to trust consumers as well through non-repudiation of transactions (digital certificates also serve this end). In the trust relationships, security and the adequacy of countermeasures are critical factors. In this realm, the main feature should be the government and the private sector implementing standards to protect consumers (identity theft, fraud, etc.).

Cyber-security in the frame of national security speaks to protection of critical infrastructure such as that used for reservoirs, power companies and security services (ambulance, fire, police, etc.). The issues here are general public safety, incident response and building capabilities to actively monitor and respond to a constantly evolving threat landscape. This arena demands participation of more players - government, private sector, NGOs, academia and the wider civil society. There needs to be a high-level policy, an underlying strategy, tactical accountability and operational consistencies.

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Marsha further points out that on the Issue of Convergence of technical platforms for telecommunication, broadcasting and information, Participant B made the following comments:

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I do not think that industry players (or governments as a matter of fact) fully grasp the power of convergence. Peer-to-peer providers such as Skype, Google Talk, Magic Jack and Vonage have the latent potential to break the monopolies held by the Tier 1 carriers (ILECs, CLECs, IXPs, etc.) as it relates to fixed line and "last mile" technologies. In this context, the age old adage that "he who owns the last mile rules" is not applicable. Peer-to-peer providers own vast networks of converged users, and by collaborating with governments / regulatory agencies and also with each other to devise interconnection agreements, can basically render the PSTN defunct. In essence, creating a entirely new paradigm of operation for the telecoms industry.

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Spam, a double-edged sword, negative externality and the tragedy of commons by Participant A:
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Commons

A “commons” is a shared resource. The Internet is a common good whose distinctive value lies in its informational, communicative and interactive dimensions.

There are three main characteristics of a Common Good.
1. Ownership – Ownership rights and responsibilities can be both private or joint
2. Contribution – Individuals or groups could contribute to the common Good
3. Participation – Different levels of interaction can occur utilizing the common good.

The value of the net is in the access it provides to information and the way it enables participation with that information and communication with other users.

Like a Public Library, the internet by nature is open and accessible to all and allows the freedom to access information and utilize information. The internet will have a limited value if it was not open for use by individuals. The responsibilities and rights of access and participation are critical factors for this value to count as a common good. So also, like a library, the internet also allows for some levels of restricted access but not all access is restricted.

As part of the characteristics of the internet, communication and participation is by and large a critical element. Email, Instant Messengers and Voice and Video interactive clients have facilitated this two-way communication and participation. However to address access to these clients, the elements of rights and responsibilities arise.

Spam is unsolicited messages through emails and other communication clients through the internet (common good).

Spam can be described as the Tragedy of Commons because it is an uncontrolled use of the internet by many individuals which causes annoyances, breaches of security systems, reduction in bandwidth for service provides and could cause damages to network infrastructures as well as has the the capability of intercepting personal data which could lead to identity theft. Spam is a serious threat to the development of an Internet society and if Spam continues uncontrolled, it will destroy the internet society.


Externatities

Externalities are common in virtually every area of economic activity. They are defined as third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid.

Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption. Externalities create a divergence between the private and social costs of production.

If we look at the internet as a good, which provides services for different players. For example, ISPs’ use the internet to deliver web hosting services and visibility for business and consumers. Now for them to provide these hosting services on the Internet platform, there are direct costs involved. i.e costs for access into the internet backbone for bandwidth, costs for developing software to deliver the service, customer relationship management software, customer service and technical support staff costs. All these are contribute towards the Private Costs.

Now if a business is about to start up and wants to consume the service, that business person would have to pay a cost in consumption.(Contribution towards Private cost). Now if there is a market failure due to a glitch in the ecommerce system, the customer might get away with registering a domain name and a server at no cost. In this example, the pricing mechnism did not take into account the costs of production even though the consumption provided extremely high benefits to the business person. This inequality explains the term externality.

SPAM an Externality
Spam allows access to ISP’s networks and private networks without contributing towards the costs of production. They also steal bandwidth from the service providers which at the end of the day would cost the consumer, due to purchasing more bandwidth to guarantee a level of service. Hence in order to access the total social cost, we would have to factor in the additional costs caused by SPAM, the Externality.

Governance dimensions
1. Both modes of analysis lead to market failures.
2. They both cause Pareto inefficiency i.e too much scarce resource is allocated to an activity which causes a market failure - (This could have an effect on the scarcity of IP numbers (IP4))
3. Both are present due to inadequate specification of rights and responsibilities (The need for policy direction)
4. Spam is seen as contributing to a Social Cost

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