ICANN and Moral Hazard
- To: 5gtld-guide@xxxxxxxxx
- Subject: ICANN and Moral Hazard
- From: George Kirikos <gkirikos@xxxxxxxxx>
- Date: Wed, 17 Nov 2010 08:13:43 -0800 (PST)
In a recent article,
there was discussion about ICANN's risk mitigation strategy. This begs the
question about "Moral Hazard":
"Economist Paul Krugman described moral hazard as: "...any situation in which
one person makes the decision about how much risk to take, while someone else
bears the cost if things go badly." Financial bail-outs of lending institutions
by governments, central banks or other institutions can encourage risky lending
in the future, if those that take the risks come to believe that they will not
have to carry the full burden of losses. Lending institutions need to take
by making loans, and usually the most risky loans have the potential for making
the highest return. So-called "too big to fail" lending institutions can make
risky loans that will pay handsomely if the investment turns out well, while
being bailed out by the taxpayer if the investment turns out badly."
So, in the context of new TLDs, ICANN is akin to the "lender", applicants are
comparable to the borrowers, and those who end up shouldering and suffering the
"losses" and "costs" when things "go badly" are the greater public (like
Since ICANN doesn't want to bear the costs if things go badly, it ends up
irresponsibly. In the banking context, the banks end up giving loans to anyone,
like the subprime mortgage brokers pushing "NINJA loans" (no income, no job, no
assets = no problem!).
Registry operators/applicants also are subject to moral hazard.
as they later seek unilateral changes in their contracts, rather than
suffering the losses. Essentially, in the ICANN universe, ICANN considers
"too big to fail", and considers every registry "too big to fail." All the
"profits" are internalized/privatized, but the losses are "socialized" (pushed
upon the greater public, who suffer).
That's unacceptable. In the real world, institutions that are "too big to fail"
are subject to careful scrutiny and a high degree of regulation. What does
do? The exact opposite, a system of "unlimited new TLDs" so that the ICANN
insiders can "internalize the profits", walk away, and let society deal with
This is all standard and basic economics. Of course, ICANN has failed to
the relevant economic studies, because it knows that any true independent and
unbiased study would point out the obvious. As the deadline to have published
the economic study has passed (it was supposed to have been published at least
15 working days prior to the start of the Cartagena meeting, and that has not
happened), it's clear that the so-called "final report" cannot be final, as the
community cannot even discuss any economic study at Cartagena.
If proper attention the moral hazard issue was taken, the case for "unlimited"
new TLDs would be destroyed. We urge the GAC, NTIA, DOC and DOJ to ensure that
ICANN isn't allowed to become yet another irresponsible subprime mortgage
pushing risky NINJA loans (new TLDs) where the losses are socialized but the
profits are privatized.
Leap of Faith Financial Services Inc.