[arin-ppml] Spectrum and IP address reservations / More from NERA

Ted Mittelstaedt tedm at ipinc.net
Tue Jul 21 15:33:02 EDT 2009

Milton L Mueller wrote:

> The main difference between economists and noneconomists in this case is that the economists were rigorous and honest enough to specify their assumptions clearly. On the other hand, the advocates of nonmarket resource allocation policies are often making equally strict and bizarre assumptions about human behavior, but their theories are often too flaccid to specify what those assumptions are, and so they are unable to derive good models of their implications.

Hold on here, Milton, your making a leading argument.

Regulators are not all "noneconomists" (whatever you mean by that)  Many 
economists advocate market regulation.

I won't argue that noneconomists have flaccid theories (sounds like a 
personal problem) since the word noneconomist implies that already.  But 
before you imply that regulators are a) not economists and b) have
flaccid theories, you better justify this about regulators.

> For example, when people say you can fix market imperfections by "regulating" the market, are they not assuming that: 
>  * the regulator has perfect knowledge about the actors in the market and everything they do

Yes and no, it depends.  A regulation proposed as a RESPONSE to some 
market imperfection DOES have a claim of behavior by the actors in the 
market - assuming the imperfection exists because of behavior.

For example recent events have demonstrated a false theory - that
bankers, acting on self-interest, will as a group avoid extending 
high-risk home loans to people with bad credit.  That theory ignored the 
fact that introducing sales commissions for sale of securities composed 
of those loans setup a lure that got bankers to act against their own 
best interest.

Thus, regulation that disallows the bundling of high-risk loans with 
low-risk loans into securities is an obvious, and logical, response to 
the aberration.

By contrast, regulations proposed with the EXPECTATION of how they think 
a market will react - such as the TARP regulation, which assumed that 
after the capital influx the banks would be all better - DID make 
assumptions about how the actors would act.

>  * the people who do the regulation will not exploit their position for their own benefit

If the regulator is permitted to operate within the market they are
regulating, this is obvious.

But not all regulators are bankers, for example.  Nor are all regulators 
millionaires with stock portfolios that will react to their regulation.

>  * regulators are never politically or personally motivated to show favoritism in the application of the rules (e.g., not prosecuting Madoff after two notifications)

The Madoff thing wasn't a favoritism in rule application, it was
criminal behavior and cannot be analysed from an economic perspective. 
You must look at it from a criminal perspective.  Criminals operate from 
a risk/benefit perspective.  If the risk of getting caught and the 
penalties for getting caught are high in comparison to the reward for 
committing the crime, the criminal will not do the crime.

The fact of the matter is that if the SEC regulators who colluded with 
Madoff to allow the scheme were imprisoned for life, it would set the 
penalty high enough so that future regulators would be very unlikely to 
engage in criminal behavior of this type.

If you want to remove favoritism from regulators the usual way to do it 
is to bar the regulator from participating in the market he's 
regulating.  This is SOP for many regulatory posts.

As for IP address regulation - have we observed reaction of the "market" 
to a shortage of IPv4 numbers yet?  No - because while such a shortage 
is looming, it hasn't happened yet.  The looming shortage is the "market 
imperfection" here, and it's a bit too early to be looking at 
comparisons to economic models, in my opinion.


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