Transaction Based Settlements Encourage Waste (was Re: BBN/GTEI)

Perry E. Metzger perry at
Tue Aug 25 19:37:37 UTC 1998

Vadim Antonov writes:
> As much the "how to count bits" thread is entertaining,
> the reason why nobody's doing any path-based accounting
> in packet networks is quite trivial:
> It is not technically feasible.
> In other words, the computing resources necessary to perform
> such accounting (and to retain the accounting information for
> subsequent billing) by far exceed resources necessary to
> perform the actual service - transportation of the packets.
> Which squarely puts it beyond the reach of today's technology.
> Until someone comes up with a feasible way to do such accounting,
> the whole point of discussing the best economical model based
> on such detailed accounting is moot.

I've been making this same argument in private mail to several people.

We don't even have a reasonable model of the costs involved in
accounting. If you add acounting into the system, how many people does 
that add to the staff to deal with billing disputes alone? How many
people have to manage the accounting system? How many packets does an
accounting system suck up from the network? How much CPU in the

Transaction costs -- the costs of doing a transaction -- are
nontrivial. Lots of technical economics papers deal with the pervasive 
impact they have on day to day life. For instance, the reason we have
corporations and not just loose agglomerations of contractors is
thought to have a lot to do with transaction costs -- a corporation
can pool resources without having to account for the costs and use of
all of them, in a way that pools of cooperating contractors cannot,
and thus can save a lot of money in accounting. (Outsourcing is said
to thus be economical when activities are detached enough that the
increase in efficiency is higher than the increased transaction

The result of all of this appears to be what the market has done for
the internet. If you offer someone lower cost service that is metered
against more expensive unmetered service, they pick the latter,
because it actually saves them a myriad of other costs, like the
personel needed to figure out if the bill is fair each month. (Having
seen the infrastructure many companies deploy to figure out if their
telco bills are correct, I'll assure you it is neither pretty nor
cheap.) People are willing to pay more to just avoid the transaction
cost load.

In addition to the fact that people have ignored the sheer weight of
transaction costs, lots of fun ideas have been tossed around, from
micropayments to automated settlement systems -- that involve
technology no one actually has ever built to commercial standards, and
which are in some cases not even available in research contexts. I
have yet to see a truly deployable and economical micropayments
system, for instance, as much fun as they are to discuss. The real fun 
associated with all such systems also comes in what happens when you
deploy one and find that the money from the payments gets absorbed in
billing errors, disputes, and such.

The point I'm making, I suppose, is that all such systems aren't
"frictionless". There is a reason all the customers like the model we
have now. They'd rather pay $1000 a month and never have someone think 
about it again than $500 and need to go over the bill. Leave well
enough alone, I say.


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