Re: [sig-policy] [Sig-policy][Draft announcement]prop-050: IPv4 addresst

  • To: Geoff Huston <gih at apnic dot net>
  • Subject: Re: [sig-policy] [Sig-policy][Draft announcement]prop-050: IPv4 addresstransfers
  • From: Tom Vest <tvest at eyeconomics dot com>
  • Date: Sat, 23 Aug 2008 19:47:08 -0400
  • Cc: Izumi Okutani <izumi at nic dot ad dot jp>, 'APNIC Policy SIG List' <sig-policy at apnic dot net>
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    • A quick response to the theoretical claim that Geoff makes on this point:
      On Aug 23, 2008, at 3:03 AM, Geoff Huston wrote:
      We've listed possible issues below:
      1. Change in the nature of IP address/IP address distribution
         - IP adress may be considered an "asset" or "property" rather than
           a resource
      I'll respond to this comment here, but with the caveat that this
      response is not really relevant to the policy proposal per se, and the
      comments are, as per the disclaimer below, strictly comments that are
      my opinions, and not necessarily positions that relate to any other
      party or any organization, including my employer.
      If you strip off all the layers and look at this in economic terms,
      what allowed addresses to be considered as valueless commodities was
      their abundance. If you had a need, the need was met from the
      allocation pools at effectively nominal cost. If you did not have a
      need then your valuation of the price of addresses was effectively
      zero, and if you did have a need then the allocation registries could
      meet that need at a minimal transaction cost. So the formation of any
      market in addresses was stymied simply because there were no buyers willing
      to pay because all such needs could be met from the existing
      distribution system.
      As many people have pointed out in the course of this debate (and occasionally illustrated by reference to current examples), there is some kind of black market for addresses, and probably always has been. It's not large in part because the "official price" for IP address resources is not monetary at all -- but rather something more like "a credible promise to use the address resources efficiently and sustainably, to the end for which they were designed, i.e., to attach things to the Internet," plus whois/registry requirements, plus a relatively trivial cost recovery function. If the black market hasn't been all that big to date, that's at least in part because there are very few good reasons for someone who is unable to pay that "official price" to even *want* IP addresses. Presumably, there have always been a small minority who are unable or unwilling to pay that "official price," but are willing to compensate with lots more money.
      As Geoff states, this says a lot about about the properties of the distribution system -- and nothing at all about the intrinsic nature of addresses *or* the relationship between scarcity and black market pricing.
      This lead to an observation that *within the context of that
      particular distribution framework* addresses had no intrinsic value
      and consequently could be considered as something other than an
      "asset" or "property" simply because they had no explicit monetary
      value within this form of distribution system.
      But such an observation says nothing about the intrinsic nature of
      addresses and says more about the properties of a distribution system
      that exploited  abundance to suppress any organized formation of
      secondary markets.
      So when that distribution framework grinds to a halt due to supply
      exhaustion do the properties of a lack of a monetary value for an
      address still hold? In a conventional  view of trade, economics and
      markets this would not be the case. Where a good is in demand and the
      demand exceeds supply then the relative scarcity is expressed as a
      pricing function. Now one view would be that this pricing function
      generates a consequent interpretation of the good as an asset simply
      because there is this value that is placed on the good because of the
      shift in the demand and supply situation. In other words the nature of
      a good, including addresses, is dependent on the context and the
      demand / supply position, the distribution framework and the utility
      value and the content of the utility function.
      This statement is technically true, but misleading in this particular context.
      Even in the "conventional view of trade, economics, and markets," in certain cases critically important commodities -- and especially very scarce ones -- *do not* appreciate in price as a result of their increasing scarcity, and *do not* suffer a risk of privatization because of market forces related to that supply/demand position. Here I am referring primarily to the commodity gold, and the period(s) in world history when gold reserves represented the foundations of the settlement system for international trade and investment (a.k.a. the "gold standard" era) -- i.e., when gold was the only globally recognized, globally interoperable "medium of exchange."
      Significantly, during such periods private ownership of monetary gold (i.e., as opposed to gold jewelry) was not only discouraged, it was illegal in most places. Correspondingly, gold was *never* subjected to direct market forces during those periods -- it was never bought or sold as a commodity in itself while it served this critical mediating function in the global economy. The reason that gold was sheltered during these periods was precisely because direct exposure to market forces, while certain to benefit the clever and lucky in the short term, would have caused so much turmoil and instability that most participants would have found the system to be more trouble than it was worth, and abandoned it.
      Thus, in this case as in the case of IP addresses, vulnerability to price fluctuations and risk of privatization has no necessary or inevitable relationship to scarcity -- given certain kinds of distribution systems.
      Now, ISPs are not countries, and RIRs are not international treaty organizations, but that distinction may not as relevant as it seems. Even if countries didn't have armies and police forces -- and/or such things played absolutely no role in the development of world trade -- most economists would still believe that they benefitted from interoperability and cross-border exchange. Most economists also accept that such interoperability was/is valuable enough as a function in itself to justify segregating one especially critical, scarce commodity -- the one that holds the whole system together -- from exposure to direct market forces.*
      Arguably, we are facing the same economic situation, albeit with more limited tools. Even so, the community is not entirely powerless. If IPv4 were recognized as critical to the Internet in the same way that gold was critical to domestic and international commerce during the gold standard periods, then it would probably make a lot more sense to acknowledge that fact and work with what tools we can muster, rather than to suffer the consequences of solving, or failing to solve, the wrong problem altogether.
      TV, personal opinion only
      *Most economists might also agree that a "boundless" medium of exchange that requires no such special treatment -- ala our current "fiat-based" global monetary system -- is inherently superior to a quantity-constrained medium like gold... but that's also debatable, and not relevant to the current IPv4 situation.