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The economics of Internet spam

Who can resist an academic paper with a title like "The Economics of Spam"? Writing in the Journal of Economic Perspectives, Justin M. Rao and David H. Reiley take an in-depth look at the flood of spam e-mails in our inbox. Some findings:

Make it stop! (Getty)

— "Every day about 100 billion emails are sent to email addresses around the world. In 2010 an estimated 88 percent of this worldwide traffic was spam."

— Companies spent about $6.5 billion in 2010 on anti-spam technology. Meanwhile, the spam that gets past the filter imposes additional costs on e-mail users. The authors assume that the average person's time is worth $25 per hour and that it takes, on average, five seconds to delete spam. If that's true, spam costs users about $14 billion. (Over at Digitopoly, Joshua Gans thinks this sounds high — presumably people can delete spam faster than that.)

— All that anti-spam technology appears to be well worth it: "If firms were not investing in anti-spam technology, end users would be receiving 100 times as much spam, which given our estimate of the current time loss due spam, would put the total economic loss at over $1 trillion."

— On the flip side, the authors note that the spamming industry probably rakes in about $300 million per year. Some people are clicking on those ads for cheap pharmaceuticals. In sum, spam is a net loss for the world. Who would've thought?

— Spammers are getting more sophisticated at breaking through anti-spam technology. For example, they'll hire human laborers to break through CAPTCHA technology. Likewise, spammers have hired thousands of people to mark Viagra and Cialis e-mails in their Yahoo! or Gmail inbox as "not spam," thereby confusing filters.

— The authors argue that spam imposes a negative externality on the world and should be taxed accordingly. One way to do this is to impose a fee on people who buy products from spammers, since they're encouraging the trend. Alternatively, some economists have proposed a small tax on anyone who sends an e-mail, known as "attention bonds." (See here for an explanation.)

— By contrast, Joshua Gans wonders whether spammers should be seen as "criminal entrepreneurship" (most spam is illegal). But fighting back is sometimes trickier than it sounds:

A few years back I contacted Yahoo and Google with an idea to counter spammers. What if for each spam email that they picked up, they responded — perhaps entering details into phishing forms? This would overwhelm spammers and they would not be able to find ‘legitimate’ responses from the gullible few. That would really alter their returns. Unfortunately, it was explained to me that such a measure would constitute an attack by a US corporation and, apparently, that is against US law.

— Gans also notes that some companies have arguably benefited from spam. Yahoo!, Hotmail, and Gmail have managed to corner 85 percent of the market for webmail services in part because they've managed to develop sophisticated spam filters.



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Sarah Kliff · August 10, 2012

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