An Economic Analysis of Spam Law

In this paper, I develop an economic argument for regulating the sending of junk emails, and examine the efficiency of various approaches to regulate junk emails. The first part of the paper develops an externality model of spam to show that in the absence of regulation, junk emails are inefficient. Next, I analyse the regulatory approaches presently used in the United States in three categories: opt-out, filtering and blocking, and opt-in. The study finds that spam can be both a positive externality as well as a negative one. However, the likelihood of being a negative externality is more probable. Absence regulation, no allocation of a property right to spam leads to an efficient level of spam. An examination of the three categories show that only the opt-in approach ensures that there is no net social loss, but not necessarily at a socially efficient level of spam. Hence, it is only a second best solution. Based on the conclusions that opt-in is the best solution given the constraints of transaction cost, the paper suggests a set of policy conclusions that serve as guidelines for countries enacting laws to regulate junk emails or spam.