Re: [xml-dev] What are the "externalities" of deploying a web service?

[Frank Manola <fmanola@acm.org>]

Roger--

A few points:

On Jan 16, 2010, at 7:40 AM, Costello, Roger L. wrote:

> Hi Folks,
> 
> Consider these two examples:
> 
> 1. When you drive, you pay for only gasoline and maintenance. You don't pay for the noise and pollutants that your car emits.  You also don't pay for the added congestion and delays that you impose on other drivers. 

You might have said you don't pay for the roads you drive on either, in the same sense that you pay for gasoline.  But of course you DO pay for the roads;  the government taxes you for them.  They also make you pay for the pollutants, in the form of requirements that car makers meet antipollution standards, which the makers add to the price tags.  Maybe they don't make you pay ENOUGH, but that's another debate.  You'd also pay yourself, in the form of increased damage to your lungs and ears, if, say, you were stuck in the Sumner Tunnel during rush hour.  

You pay for congestion and delays in the form of congestion and delays (you pay in a more obvious way if you're stuck in a taxi with the meter running).

> 
> 2. When society is educated, it costs less to produce signs, ballots, tax forms, and other information tools. Literacy enables a democracy to function effectively, and higher education may stimulate scientific discoveries that improve the welfare of society. When you acquire an education, however, you do not get a check in the amount of savings your education will create for society.

You don't get a bill either.  If you were to write a check to Adolf Hitler for the amount of savings his education created for society, what number would you fill in?

> 
> The first example shows costs that you incur but are borne by others not directly involved.
> 
> The second example shows benefits that you incur but are accrued by others not directly involved.

The problem with this is that all these "others not directly involved" are only "not directly involved" by drawing very artificial lines around certain activities, in order to consider them "market transactions".  It makes sense in some circumstances to draw these lines for purposes of analysis, but you have to be careful that you can realistically isolate things in this way.  It's like the difference between "closed" and "open" systems in thermodynamics.  

> 
> Externalities are the costs or benefits of a market activity borne or accrued by someone who is not a direct party to the market transaction.
> 
> What are the externalities of deploying a web service?
> 
> Here's one: Suppose you deploy a web site and it is massively successful - lots of people visit your web site. You assume the costs of hiring land, labor, and capitol. But you don't bear the costs associated with the increased congestion and delays you impose on other users of the Internet.
> 
> Increased congestion and delays are externalities of deploying a web service. What are the other externalities?
> 
> Who pays for the externalities? For instance, who pays for the additional routers and DNS servers?

Suppose the web site is instead a (physical) shopping center, and ask the same questions?  Who pays for the congestion?  Who pays for widening the highways to enable people to get to the shopping center.  If the congestion gets too bad, doesn't the shopping center "pay" in terms of lost business (lack of return on investment) by people who avoid going there?  The Web site is the same isn't it?

What about the benefits?  If there weren't any popular Web sites to be accessed, wouldn't the Web be less popular, and fewer people want to pay for internet access?  

--Frank


> 
> /Roger
> 
> 
> P.S. The two examples and the definition of "externalities" come from the book: "Economics" by Boyes and Melvin.