[CAnet - news] Assigning Broadband Rights- exellent paper on Network Neutrality

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[An excellent economics paper on the issue of network neutrality. Some
excerpts -- BSA]

http://www.cato.org/pubs/regulation/regv27n2/v27n2-2.pdf

Some internet service providers (isps) and portals like Yahoo! and Earthlink
are concerned that cable television and telephone companies that now provide
residential highspeed Internet access may branch out into the provision of
content or enter into exclusive deals for content. Their fear is that this
might result in current isps and content providers being cut off from
access to existing and new customers.

Meanwhile, some legal scholars have expressed concern that the provision or
control of content by local broadband providers will create incentives for
them to adopt proprietary technical standards that would, even if
inadvertently, exclude certain kinds of content and information sources.
They worry that this would undermine the very incentive and opportunity
for innovation that led to the creation and growth of the Internet.

....

Economics students learn about the Coase Theorem. What they remember,
usually, is Nobel laureate Ronald Coase's argument that property rights will
end up in the hands of the most efficient owners or users if such rights are
clearly defined and can be traded freely and cheaply. The Coase Theorem is
an elegant extension of the concept of competitive markets and the power of
the "invisible hand."

Indeed, the idea is not limited to property rights, but extends to any legal
entitlement. The key insight is that legal entitlements are, for some
purposes, best understood as economic goods to be bought and sold in the
market. Just as competitive markets can allocate other scarce resources
efficiently, they can do so with rights.

The Coase Theorem has two policy implications. The point that people tend to
remember is that laissez faire policies generally advance consumer welfare.
The other implication, less often remembered, is that when transactions are
not cheap and easy, it is important to assign property rights as nearly as
possible to their most efficient users. Otherwise, unless the hardto-
transfer rights happen to land naturally in the hands of efficient
users, opportunities for welfare gains will be lost. The recognition and
initial assignment of property and other legal rights are, of course, roles
for the state.

...

Effective regulation of monopolists is harder than herding cats.
Policymakers should seek competitive solutions before resorting to
structural remedies.

...

Property rights assignments, like the allocation of other scarce
resources, can be evaluated with the tools of economic analysis.
Fortunately for everyone, letting property rights stick where
they fall initially, combined with subsequent free trade in them,
will usually promote social welfare. But that is not always the
case. Sometimes, to overcome a market failure, state intervention
is required to reassign property rights to more efficient
holders. When considering such intervention, it is important
to remember how common is human error and how difficult
it is to correct such error once enshrined in political institutions.
Accordingly, the burden of proof required for intervention
should be high.

If local broadband Internet services were supplied by an
entrenched monopolist, and if that monopolist sought to integrate
vertically into Internet content and standards creation or
to restrict use of its proprietary standards in order to extend or
perfect its market power, there would be a case for reassignment
of access (and/or standard-setting) rights to users or others.
But those conditions are not yet met, so such intervention
is not justified.



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