Commentary

A Free Market Solution to Spam

By Shyam Sunder
February 27, 2004

On Jan. 1, a new federal law regulating unsolicited commercial e-mail (“spam”) went into effect. The law places the burden of opting out of spam on consumers, who worry that any communication to spammers simply confirms the validity of their e-mail address. It authorizes, but does not require, the Federal Trade Commission to establish a Do-Not-Spam registry replicating the popular Do-Not-Call registry for telemarketing. Yet it is unclear how the government would deter violators, in part because a lot of spam originates from outside U.S. borders.

So is there an answer to the spam problem? Yes: Require spammers to pay recipients, through postage, to receive their spam. It’s that simple, and it doesn’t require massive government regulation.

Look at Britain. There, e-commerce privacy is regulated by a government agency. Yet a recent study that I conducted with co-authors Karim Jamal and Michael Maier indicates that spam and Internet privacy violations are as troublesome in the UK as they are in the largely unregulated United States.

Last year, we visited 56 high-traffic UK sites and 100 high-traffic U.S. sites to determine if they posted privacy policies, if they used cookies, and if our visits led to our receipt of spam. We found that the UK sites were less likely than their U.S. counterparts to post privacy policies, even though UK law requires the display of that information. The UK sites were also less likely to disclose the use of cookies, or that third parties use the gathered data. Finally, we found that, regardless of whether we opted in or opted out of receiving commercial e-mail from the sites, visits to UK sites generated slightly more spam than the U.S. sites on average.

Why would Internet privacy in the heavily regulated UK be protected no better than in the laissez faire United States? Regulation is not effective when it is difficult and costly to detect violations, identify the violators and impose sanctions. When people find it in their own best interests to follow society’s norms, such norms can be more effective than regulation backed by legal enforcement.

In the United States, many high-traffic sites are eager to show that they respect consumers’ demand for privacy, in order to keep consumers coming back. Those sites frequently contract with firms like TRUSTe and BBB Online to establish rules for privacy protection and to test whether the Web sites follow the rules. If compliance is proven, the Web sites receive seals of approval that they can display to Web surfers. Hence, the U.S. sites consider protection of visitors’ privacy as a lure to attract customers, while the UK government mandate on Internet privacy seems to have become a target for minimal compliance, and even circumvention.

But if the U.S. approach to Internet privacy is somewhat better than the UK’s, is there some way to reduce the annoying amount of spam? Robert Kraut, James Morris and I recently proposed one approach: Have spammers pay recipients to receive their e-mails. Just as postage on a letter provides a useful disincentive for junk mailers and signals recipients as to the material’s importance, so the adoption of a voluntary “postage” scheme for e-mail — with the recipient receiving the postage — would help the recipients screen out spam.

Senders would affix any postage they wish to their messages. The amount of postage would be displayed on the receiver’s screen, and would be transferred between the escrow accounts maintained by the e-mail or Internet service provider. Recipients can configure their browsers to prioritize incoming messages by the amount of postage, and be free to automatically delete messages without postage they consider sufficient to draw their attention. They can also allow messages from friends and colleagues to receive higher priority irrespective of postage. This voluntary e-mail postage is a market-based solution for efficiently serving the legitimate interests of both the sender and the recipient.

E-mail postage will help discipline spammers. Low or no postage on the messages they send will reduce the chances that their messages will be read or even opened. Increasing the chance of getting recipient attention will cost real money. As with other markets, a market will develop to induce efficient allocation of our precious attention without government regulation.

Having been accustomed to free e-mail, the postage idea may, at first, sound unacceptable to many. When first proposed in the 1980s, the idea of trading pollution rights to reduce atmospheric emissions was greeted with skepticism. Today, it has become an effective solution to an important socio-economic problem based on laws of economics. Following Adam Smith, we can design our social systems so pursuit of self-interest by individuals leads to efficient social outcomes. Contrary to popular beliefs, cyberspace is not exempt from these laws.

Shyam Sunder is James L. Frank Professor of Accounting, Economics and Finance at the Yale School of Management. A discussion of his research on U.S. and UK Internet privacy appears in the current issue of Regulation magazine, a publication of the Cato Institute.