We all get a lot of spam. Just today, Gmail has neatly filed more than 100 messages into my Spam folder. When I look at the list of subjects, I wonder: How the hell could any of this actually make someone money?

It's just weird: I understand annoyances like telemarketing where it's clear that some people buy things from people who call them at home. But spam? It just seems like a waste all around.

Now, in a new paper in the Journal of Economic Perspectives, Justin Rao of Microsoft and David Reiley of Google (who met working at Yahoo) have teamed up to estimate the cost of spam to society relative to its worldwide revenues. The societal price tag comes to $20 billion. The revenue? A mere $200 million. As they note, that means that the "'externality ratio' of external costs to internal benefits for spam is around 100:1. Spammers are dumping a lot on society and reaping fairly little in return." In case it's not clear, this is a suboptimal situation.



It is just so cheap to send spam and even if you only ensnare a tiny number of people, that's enough to make it worthwhile. Rao and Reiley estimate that only 1 in 25,000 people need somehow buy something through spam advertising to make it worthwhile.









So what's the way forward? The researchers gloss a variety of techniques like "attention bonds," in which you'd be paid some tiny amount (say, $0.05) for reading unsolicited emails, and government interventions. But their preferred solution is to find ways to raise the cost of business for spammers, so that their campaigns become unprofitable.



"We advocate supplementing current technological anti-spam efforts with lower-level economic interventions at key choke points in the spam supply chain, such as legal intervention in payment processing, or even spam-the-spammers tactics," they conclude. "By raising spam merchants' operating costs, such countermeasures could cause many campaigns no longer to be profitable at the current marginal price of $20-50 per million emails."

Many activities impose costs on society that are not "internalized" by the firms or individuals. Air and water pollution are the paradigmatic examples. You get to drive your car around emitting particulates and various other smog-causing molecules that increase the cost of treating asthma and other illnesses for other people by a tiny bit.

Spam has a remarkably high externality ratio, not just relative to driving an automobile, but stealing one, too. Here's a chart that Rao and Reiley include in their paper, which just looks at the direct costs of spam to end users (which they estimate at $14-$18 billion):