Re: Micropayments: myth?

[Hal Varian <hal@alfred.sims.berkeley.edu>]

On Wed, 5 Jun 1996, Nick Szabo wrote:

> 
> Some electronic commerce projects promise dramatically lower transaction
> costs, so that we can achieve "micropayments", "microintermediation",
> and so forth.  Is this achievable?  
> 

Well let me chip in on this.  First, my Web site at
   http://www.sims.berkeley.edu/resources/infoecon/Commerce.html
has links to lots of the relevant resources.

I think that there are really two accounting models that are being
discussed.  One is centralized accounting, a la the phone company.
The other is what I call "distributed accounting".  Models for
distributed accounting are postage stamps/meters, and cash.
In the distributed accounting model, individuals get tokens
(stamps, coins, dollars, BART cards, phone cards, etc.) and keep
track of their own usage.  This form of accounting is ideally suited
to micropayments.  You may lose your BART card, or your dollars,
but that risk is borne by the user.

As Stefan pointed out, micropayments can add up in a big organization.
But in the distributed accounting case, it is the organization's 
responsibilty for managing these payments.  Indeed, most organizations
have strict policies about petty cash, postage stamps, etc for just this 
reason. 

Centralized accounting is much more open-ended.  Here the risk of 
non-payment is often partially borne by the provider and partially
by the user.  This form of payment is typically used for repeated
purchases where reputation/credit-worthiness plays a big role.

Hal Varian, Dean           voice: 510-642-9980
SIMS, 102 South Hall       fax:   510-642-5814
University of California   hal@sims.berkeley.edu
Berkeley, CA 94720-4600    http://www.sims.berkeley.edu/~hal