ICANN and Moral Hazard

[George Kirikos <gkirikos@xxxxxxxxx>]

In a recent article,

http://domainincite.com/is-icann-too-scared-of-lawsuits/

there was discussion about ICANN's risk mitigation strategy. This begs the 
question about "Moral Hazard":

http://en.wikipedia.org/wiki/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 
risks 
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 
taxpayers). 

Since ICANN doesn't want to bear the costs if things go badly, it ends up 
acting 
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.

http://forum.icann.org/lists/jobs-phased-allocation/msg00000.html

as they later seek unilateral changes in their contracts, rather than 
personally 
suffering the losses. Essentially, in the ICANN universe, ICANN considers 
itself 
"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 
ICANN 
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 
the 
losses. 

This is all standard and basic economics. Of course, ICANN has failed to 
produce 
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.

http://twitter.com/#!/GeorgeKirikos/statuses/4643301609185281
http://twitter.com/#!/GeorgeKirikos/statuses/4643764064747520

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 
broker 
pushing risky NINJA loans (new TLDs) where the losses are socialized but the 
profits are privatized.

Sincerely,

George Kirikos
President
Leap of Faith Financial Services Inc.
http://www.leap.com/