Thursday was the last day for comments on the Federal Communications Commission's proposals to bolster the agency's Internet nondiscrimination rules, and under the wire comes another study that suggests that net neutrality makes good economic sense—we summarized a somewhat similar report on Monday. This latest is produced by Christiaan Hogendorn of Wesleyan University. And whether you agree with it or not, it raises an interesting question: how do you measure the total value of the 'Net? The answer, for this economist, is by measuring the participation of people.

Hogendorn's pro-net neutrality paper argues, in essence, that the "the full value to society of an open Internet" is more or less equivalent to the degree of social participation that it draws. And that value "is likely to be considerably higher than the value that an ISP would consider when setting prices and policies that would degrade the quality of some sources of content relative to others," e.g., the kind of prioritized access rules that the FCC's proposed net neutrality regulations would bar.

The more the merrier

Hogendorn's study does not skimp on economist jargon, but it's not bad jargon (for jargon). First, the Internet is a general purpose technology, he explains, which means that it can be put to all kinds of uses. Second, it is subject to all kinds of network effects that result in positive spillovers. This means that the Internet increases with value as it draws more and more social participation.

That happens at a variety of levels. The more 'Netizens use Facebook or Twitter, the more these apps become of social value to an ever-expanding number of people. The more eBay is accessed to buy and sell, the greater economic value the company offers to online buyers and sellers. The more participatory a service like Amazon makes itself, the more consumers will want to stick around the site and buy stuff. And the more users glom onto applications with various formatting or programming standards—e.g., html, xml, css, php—the more developers will create more apps for them or expand the standards themselves.

"Consumers value network effects a lot," the paper plainly notes, reconfirming what scholars like Andrew Odlyzko say—that it's not content that draws people to the Internet, it's other people. The balance of worldwide telco revenue (perhaps as much as 80 percent), Odlyzko contends, still comes from voice. "And the bulk of the remainder is from other connectivity services (such as texting, or, to the extent one can allocate revenues from Internet access, from email)."

It's not like content doesn't play a crucial role, Hogendorn notes. Sites like Wikipedia create positive externalities, by offering an enormous amount of free "useful information." But overall, these are the dynamic benefits of the Internet. They're much harder to measure than the static benefits (the immediate fees charged for services), but they're definitely out there drawing ever more people into cyberspace.

"By charging consumers a subscription fee, [ISPs] receive compensation for use of the Internet and capture some value from the consumer," the paper argues. "But they do not capture the full value of consumers' use of this communication tool—neither the full value in terms of the consumers themselves, and particularly not the spillovers that come from the consumers putting their Internet access to productive uses, and communicating or transacting with someone else."

Crashing the party

But this spillover phenomenon is threatened by the prospect of ISPs offering prioritized services over the Internet, Hogendorn contends—offering faster speeds to some companies (at a price), or preferring certain applications over others. Prioritizing big areas of the Internet could reduce the total number of participants in any communications or social networking service:

For example, suppose an ISP introduces a traffic management practice that forces users to pay extra for a voice application like Skype. Then some users will not feel the benefits of joining are sufficient to justify paying the fee, and they will not join. But this does not create a loss for that consumer

alone. All of the other users of the network will also receive less value, even if

they choose to pay the fee, because the direct network effect has been reduced.

And this is crucial to the development of the 'Net. The paper cites other studies concluding that consumers value a ten percent jump in the number of similar users in a network about the same as they appreciate a five percent drop in the price of participation. "Thus, if discrimination were to 'balkanize' the Internet and reduce the size of many network communities using various applications by similar amounts, the costs in terms of lost surplus from network externalities could be very large."

On the other hand...

Hogendorn's paper offers very humanist take on the net neutrality question. But one can see his participatory network-oriented arguments being used by critics of net neutrality as well. If ISPs can't take aggressive steps to prioritize and manage user traffic, skeptics will continue to counter, the quality of many networks will decline—a complaint already being heard by iPhone users. That could decrease participation on a variety of platforms just as easily as prioritized access.

Others want assurances that strict net neutrality rules won't result in a jump in consumer ISP prices, raising the economic participation bar for many households, especially minority households. That's a concern already raised by a host of minority advocacy groups.

Still, it's good to see an economist arguing that the true value of the Internet must be measured in something besides money. Although Thursday was the deadline for comments, you can still reply to what others have written through March 5. Read it all here. Submit a comment here (the number for field #1 "proceeding" is 09-191).