Aug 6, 2012

The economics of spam

We estimate that American firms and consumers experience costs of almost $20 billion annually due to spam. Our figure is more conservative than the $50 billion figure often cited by other authors, and we also note that the figure would be much higher if it were not for private investment in anti-spam technology by firms, which we detail further on. Based on the work of crafty computer scientists who have infiltrated and monitored spammers' activity, we estimate that spammers and spam-advertised merchants collect gross worldwide revenues on the order of $200 million per year. Thus, the "externality ratio" of external costs to internal benefits for spam is around 100:1. In this paper, we start by describing the history of the market for spam, highlighting the strategic cat-and-mouse game between spammers and email providers. We discuss how the market structure for spamming has evolved from a diffuse network of independent spammers running their own online stores to a highly specialized industry featuring a well-organized network of merchants, spam distributors (botnets), and spammers (or "advertisers"). We then put the spam market's externality ratio of 100 into context by comparing it to other activities with negative externalities. Lastly, we evaluate various policy proposals designed to solve the spam problem, cautioning that these proposals may err in assuming away the spammers' ability to adapt.
That is from Rao and Reiley's article in the new number of the Journal of Economic Perspectives (Summer 2012). They offer some ideas of policies to deal with the problem, but are also cautious about them. See the new number of the JEP here. Two more articles look very interesting, this and this one. 

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