Trust in electronic markets: The convergence of cryptographers and economists

First Monday

Volumn 1, Issue 2, 1996, Pages

  Reagle Jr , Joseph M ^a  

^a NYU

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EID: 53249136529     PISSN: 13960466     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (122)

1. Joseph M. Reagle Jr., 1996. "Trust in a cryptographic economy and digital security deposits: Protocols and policies," Master of Science in Technology and Policy Thesis, Massachusetts Institute of Technology, http://rpcp.mit.edu/∼reagle/commerce/commerce.html
2. I borrow the term "trust management" from M. Blaze, J. Feigenbaum, J. and Lacy, 1996. "Decentralized trust management," Proceedings of the IEEE Symposium on Security and Privacy, May 6-8, 1996, Oakland, Calif.
3. A. D. Birrell, B. W. Lampson, R. M. Needham, and M. D. Schoreder, 1986. "A Global authentication service without global trust," Proceedings of the IEEE Symposium on Security and Privacy;
4. R. Yahalom, B. Klein, and T. Beth, 1993. "Trust relationships in secure systems - A Distributed authentication perspective," Proceedings of the 1993 IEEE Symposium on Research in Security and Privacy, pp. 150-164;
5. T. Beth, M. Borcherding, and B. Klein, 1994. "Valuation of trust in open networks," Proceedings of the European Symposium on Research in Computer Security (ESORICS), vol. LNCS 875, pp. 3-18;
6. M. E. Zurko and P. M. Hallam-Baker, 1995. "Secure authorization issues on the Web," half-day workshop at the Third International World Wide Web Conference;
7. M. Branstad, W. C. Barker, and P. Cochrane, 1990. "The Role of trust in protected mail," Proceedings of the IEEE Symposium on Security and Privacy, pp. 210-215.
8. M. E. Zurko and P. M. Hallam-Baker, 1995. "Secure authorization issues on the Web," half-day workshop at the Third International World Wide Web Conference.
9. T. C. May, 1995. "Crypto + Economics + AI = Digital Money Economies," Cypherpunks. The Cypherpunks list is archives at http://www.hks.net/cpunks/index.html
10. P. V. Rangan, 1988. "An Axiomatic basis of trust in distributed systems," Proceedings of the IEEE Symposium on Security and Privacy, p. 205.
11. M. Abadi, M. Burrows, and R. Needham, 1990. "A Logic of authentication," ACM Transactions on Computer Systems, vol. 8, no. 1, pp. 18-36;
12. L. Gong, R. Needham, and R. Yahalom, 1990. "Reasoning about belief in cryptographic protocols," Proceedings of the 1990 IEEE Symposium on Research in Security and Privacy, pp. 234-248.
13. R. Yahalom, B. Klein, and T. Beth, 1993. "Trust relationships in secure systems - A Distributed authentication perspective," Proceedings of the 1993 IEEE Symposium on Research in Security and Privacy, p. 152. In this paper, the authors provide an interesting table of functions for which principles are often trusted to do: identification, key generation, escrow, non-interference, clock synchronization, protocol compliance, and providing information about others' trustworthiness or reputation.
14. R. Yahalom, B. Klein, and T. Beth, 1993. "Trust relationships in secure systems - A Distributed authentication perspective," Proceedings of the 1993 IEEE Symposium on Research in Security and Privacy, p. 156.
15. T. Beth, M. Borcherding, and B. Klein, 1994. "Valuation of trust in open networks," Proceedings of the European Symposium on Research in Computer Security (ESORICS), vol. LNCS 875, p. 3.
16. T. Beth, M. Borcherding, and B. Klein, 1994. "Valuation of trust in open networks," Proceedings of the European Symposium on Research in Computer Security (ESORICS), vol. LNCS 875, p. 5. The interesting constraint of this analysis is that any negative experience destroys any direct trust relationship.
17. T. Beth, M. Borcherding, and B. Klein, 1994. "Valuation of trust in open networks," LNCS 875, p. 5. Op. cit.
18. T. Beth, M. Borcherding, and B. Klein, 1994. "Valuation of trust in open networks," Proceedings of the European Symposium on Research in Computer Security (ESORICS), vol. LNCS 875, pp. 3-18.
19. The term trust is often used in two contrary ways which can be confusing. On one hand, "I don't trust that person," means one has a low expectation of individual assertions being true, and the consequent risk is higher. Risk is the inverse of trust. There is also the concept of, "the less risk there is, the less I need to trust the person." Trust and risk are related linearly. However, the second statement is speaking about the need of trust to overcome some amount of risk. Rather than this being the expectation of an assertion being true, one is expressing the existence of risk (or variance in one's expectation) but that one will act upon the assertion regardless. For most of this paper, I will use "trust" in the first sense.
20. Chapter 5 of R. S. Pindyck and D. L. Rubinfeld, 1995. Microeconomics. Englewood Cliffs, N. J.: Prentice-Hall, entitled "Choice under uncertainty," provides an economic treatment of uncertainty.
21. R. De Neufville, 1990. Applied systems analysis: engineering planningand technology management. New York: McGraw-Hill, provides a much more extensive and practical treatment.
22. For a more theoretical treatment, see P. C. Fishburn, 1982. The Foundations of expected utility. Dordrecht, Holland; Boston:
23. D. Reidel, and P. C. Fishburn, 1972. Mathematics of decision theory. The Hague: Mouton.
24. There is a significant amount to be gained by establishing stable long standing trust relationships or certification agencies so as to avoid such calculations for the most part.
25. R. De Neufville, 1990. Applied systems analysis: engineering planning and technology management. New York: McGraw-Hill, p. 330.
26. I must caution that the case in this part of the paper is an example of a perfect information problem. The nature of information is much more general (the whole market). As such, I found it useful to break up the two cases to demonstrate that credit agencies could provide a wide range of information in depth, breadth, and detail regardless of whether the information was theoretically perfect or imperfect.
27. R. De Neufville, 1990. Applied systems analysis: engineering planning and technology management. New York: McGraw-Hill, p. 337.
28. See Joseph M. Reagle Jr., 1996. "Trust in a cryptographic economy and digital security deposits: Protocols and policies," Master of Science in Technology and Policy Thesis, Massachusetts Institute of Technology, http://rpcp.mit.edu/∼reagle/commerce/commerce.html
29. Within the confines of the philosophical issue of "in as far as we can know what is true."
30. H. Finney and W. Dai, 1995. "Re: Towards a Theory of Reputation," cypherpunks@toad.com: Tuesday, 21 Nov 1995 15:32:08 -0800. Cypherpunks' archives can be found at http://www.hks.net/cpunks/index.html
31. Certainly, reputation already plays a key part of many Internet communities including Internet Relay Chat (IRC), backgammon servers, chess servers, Netrek, and MUDS. For more details on some these environments, see Joe Pantusoi, Will Moss, Rawn Shah, and Jim Romine, 1996. The Complete Internet gamer. New York: Wiley.
32. In H. Finney and W. Dai, 1995. "Re: Towards a Theory of Reputation," cypherpunks@toad.com: Tuesday, 21 Nov 1995 15:32:08 -0800; cypherpunks' archives at http://www.hks.net/cpunks/index.html
33. R. S. Pindyck and D. L. Rubinfeld, 1995. Microeconomics. Englewood Cliffs, N. J.: Prentice-Hall, p. 157.
34. R. S. Pindyck and D. L. Rubinfeld, Microeconomics. Op. cit., p. 532.
35. For work on information economics, see R. E. Babe, 1993. "The Place of information in economics," In: R. E. Babe (ed.), Information and communications in economics, Boston: Kluwer,
36. and, J. Eatwell, M. Milgate, and P. Newman, eds., 1989. The New Palgrave: Allocation, information and markets. London: Macmillan Reference.
37. R. S. Pindyck and D. L. Rubinfeld, 1995. Microeconomics. Englewood Cliffs, N. J.: Prentice-Hall, p. 594.
38. R. S. Pindyck and D. L. Rubinfeld, Microeconomics. Op. cit., p. 598.
39. C. Lai, G. Medvinsky, and B. C. Neuman, 1994. "Endorsements, licensing, and insurance for distributed system services," Proceedings of the Second ACM Conference on Computer and Communications Security, Nov. 94.
40. H. Finney and W. Dai, 1995. "Re: Towards a Theory of Reputation," cypherpunks@toad.com: Tuesday, 21 Nov 1995 15:32:08 -0800; archives at http://www.hks.net/cpunks/index.html
41. H. Finney and W. Dai, Re: Towards a Theory of Reputation," 1995. "15:32:08 -0800; Op. cit.
42. R. Axelrod, 1987. "The Evolution of strategies in the iterated prisoner's dilemma," in L. Davis, ed. Genetic algorithms & simulated annealing. London: Pittman;
43. and, R. Axelrod, 1984. The Evolution of cooperation. New York: Basic Books.
44. J. H. Holland, 1975. Adaptation in natural and artificial systems: an introductory analysis with applications to biology, control, and artificial intelligence. Ann Arbor, Mich.: University of Michigan Press.
45. D. F. Midgley, R. E. Marks, and L. G. Cooper, 1995. "Breeding competitive strategies," Working Paper for the Santa Fe Institute Economics Research Program, no. 95-06-052, p. 3; abstract at http://www.santafe.edu/sfi/ publications/Abstracts/95-06-052abs.html
46. L. K. Eisenberg, 1995. "Connectivity and financial network shutdown," Working Paper for the Santa Fe Institute Economics Research Program, no. 95-04-041, abstract at http://www.santafe.edu/sfi/publications/ Abstracts/95-04-041abs.html;
47. R. Marimon, E. McGrattan, and T. J. Sargent, 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, vol. 14, pp. 329-373;
48. D. F. Midgley, R. E. Marks, and L. G. Cooper, 1995. "Breeding competitive strategies," Working Paper for the Santa Fe Institute Economics Research Program, no. 95-06-052, abstract at http://www.santafe.edu/sfi/ publications/Abstracts/95-06-052abs.html;
49. I. Karatzas, M. Shubik, and W. D. Sudderth, 1995. "A Strategic market game with secured lending," Working Paper for the Santa Fe Institute Economics Research Program, no. 95-03-037, PostScript version available at http://www.santafe.edu/sfi/publications/Workinq-Papers/95-03-037.ps;
50. D. Lane, F. Malerba, R. Maxfield, and L. Orsenigo, 1995. "Choice and action," Working Paper for the Santa Fe Institute Economics Research Program, no. 95-01-004, PostScript version available at http://www.santafe.edu/ sfi/publications/Workinq-Papers/95-01-004.ps;
51. and, S. H. Paskov and J. F. Traub, 1995. "Faster valuation of financial derivatives," Working Paper for the Santa Fe Institute Economics Research Program, no. 95-03-034, abstract at http://www.santafe.edu/sfi/ publications/Abstracts/95-03-034abs.html
52. K. Kelly 1995. Out of control: The New biology of machines, social systems and the economic world. Reading, Mass.: Addison-Wesley,
53. and, N. J. Vriend, 1994, "Self-Organized markets in a decentralized economy," Working Paper for the Santa Fe Institute Economics Research Program, no. 94-03-013, abstract at http://www.santafe.edu/sfi/publications/ Abstracts/94-03-013abs.html
54. J. P. Barlow, 1994. "The Economy of ideas," Wired, vol. 2, no. 3, p. 84;
55. B. Don and D. Frelinger, 1995. "Can the conventional models apply? The Microeconomics of the information revolution," First USENIX Workshop on electronic commerce, New York, New York (July 11-12, 1995), abstract at http://www.usenix.org/publications/library/proceedinqs/ec95/don.html;
56. and, H. R. Varian, 1995. "Economic mechanism design for computerized agents," First USENIX Workshop on electronic commerce, New York, New York (July 11-12, 1995), abstract at http://www.usenix.org/publications/library/ proceedinqs/ec95/varian.html
57. E. Dyson, 1995. "Intellectual Value," Wired, vol. 3, no. 7, p. 137, and at http://www.hotwired.com/wired/3.07/features/dyson.html;
58. J. Eatwell, M. Milgate, and P. Newman, eds., 1989. The New Palgrave: Allocation, information and markets. London: Macmillan Reference;
59. and, U. Witt, 1989. "The Evolution of economic institutions as a propaganda process," Public Choice, vol. 62, pp. 155-172.
60. M. M. Waldrop, 1992. Complexity: The Emerging science at the edge of order and chaos. New York: Simon & Schuster.
61. Webster's unabridged dictionary of the English language. New York: Portland House, 1989, p. 737.
62. Webster's unabridged dictionary of the English language. Op. cit., p. 1304.
63. Webster's unabridged dictionary of the English language. Op. cit., p. 242.
64. C. Lai, G. Medvinsky, and B. C. Neuman, 1994. "Endorsements, licensing, and insurance for distributed system services," Proceedings of the Second ACM Conference on Computer and Communications Security, Nov. 94, p. 170.
65. S. Bendiek, K. Laws, and C. Woehler, 1996. "Brokers and intermediaries," a student group project for class 15.967: Electronic commerce and marketing, Sloan School of Management, Massachusetts Institute of Technology, at http://www-sloan.mit.edu/15.967/GROUP23/qroup%20project%232.html
66. Credit scoring and credit control : based on the proceedings of a conference on credit scoring and credit control, organized by the Institute of Mathematics and Its Applications and held at the University of Edinburgh in August 1989, L. C. Thomas, ed. Oxford: Clarendon Press, 1992, p. v.
67. For example, C. J. Bond, 1993. Credit management handbook: A Complete guide to credit and accounts receivable operations. New York: McGraw Hill;
68. G. O. Bancroft, 1989. A Practical guide to credit and collection. New York: American Management Association;
69. and, G. Clemenz, 1986. "Credit markets with asymmetric information," In: B. Beckmann and W. Krelle, eds. Lecture Notes in Economics and Mathematical Systems, Berlin: Springer-Verlag.
70. Roy Davies, "Money - History present & future" at http://www.ex.ac.uk/∼RDavies/arian/money.html
71. R. Marimon, E. McGrattan, E., and T. J. Sargent, 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, vol. 14, pp. 329-373.
72. N. Kiyotai and R. Wright, 1989. "On money as a medium of exchange," Journal of Political Economy, vol. 97, pp. 927-954.
73. Holland's classifier system is a form of an evolutionary modeling system; see J. H. Holland, 1975. Adaptation in natural and artificial systems: an introductory analysis with applications to biology, control, and artificial intelligence. Ann Arbor, Mich.: University of Michigan Press.
74. For instance, see P. Panurach, 1995. "The Economics of digital commerce: An Analysis of digital cash, electronic fund transfers, and ecash," ecash@digicash.com: Tuesday, 19 Dec 1995 12:42:23 +0700. In this paper, Patiwat Panurach (e-mail: pati@ipied.tu.ac.th), of the Faculty of Economics at Thammasat University in Bangkok, describes the characteristics of various digital instruments with respect to anonymity, liquidity, velocity, and money-supply.
75. P. Huber, 1992. "On Money," Forbes, vol. 16, p. 144.
76. P. Huber, "On Money," 1992. Forbes, vol. 16, p. 144. Op. cit.
77. Originally it was actually processing trades and transactions itself but the SEC warned that it was not a licensed broker and the transactions should be carried out through a legitimate bank or escrow agent. See J. Taylor, 1996. "SEC says brewery may use Internet to offer its stock," Wall Street Journal (March 26), p. B4.
78. SEC-LIVE can be found at http://www.seclive.com/
79. http://www.ai.mit.edu/people/lethin/ecm.html
80. Cambridge Trading Services Corp., "Letters of credit," http://www.cambtrade.com/Letters.html
81. Article 5 of the Uniform Commercial Code deals with letters of credit and can be found at http://www.law.cornell.edu/ucc/5/overview.html
82. R. Hettinga, 1995. "e$: What's a digital bearer bond?," cypherpunks@toad.com: Tuesday, 19 Nov 1995 17:43:15; http://thumper.vmenq.com/ pub/rah/dbb.html
83. Dimitri Vulis opined that "The fact that bearer bonds were outlawed suggests that if and when new ways are invented to conduct financial transactions that are conductive to tax evasion (e.g., using anonymous electronic payments), they too may become outlawed." See D. Vulis, 1995. "RE: Anonymity and intellectual capital," http://infinity.nus.sq/ cypherpunks/dir.archive-95.11.15-95.11.21/0267.html
84. R. Hettinga, 1995. "e$: What's a digital bearer bond?," cypherpunks@toad.com: Tuesday, 19 Nov 1995 17:43:15; http://thumper.vmenq.com/ pub/rah/dbb.html
85. Some mechanisms that are not being used or have been incorporated into other proposals include iKP, Secure Transaction Technology, Secure Electronic Payment Protocol, Netscape's Secure Courier, the Simple Network Payment Protocol, the Hewlett Packard Payment Method, and Anonymous Internet Mercantile Protocol.
86. This information was formerly part of the Frequently Asked Questions file for the Security First Network Bank. This site has been reorganized and this information has been dispersed. Visit the Bank's site at http://www.sfnb.com/ infodesk/infodesk.html for more information.
87. C. P. Pfleeger, 1989. Security in computing. Englewood Cliffs, N. J.: Prentice-Hall, p. 132.
88. C. P. Pfleeger, Security in computing. Op. cit., p. 131.
89. A. Beutelspacher, 1990. "How to say "no"," In: J.-J. Quisquater and J. Vandewalle, eds. Advances in Cryptology - EUROCRYPT '89, Lecture Notes in Computer Science vol. 434, p. 491.
90. M. Jakobsson, 1995. "Ripping coins for a fair exchange," In: L. C. Guillou and J.-J. Quisquater, eds. Advances in Cryptology - EUROCRYPT '95, Lecture Notes in Computer Science, vol. 921, p. 220.
91. Joseph M. Reagle Jr., 1996. "Trust in a cryptographic economy and digital security deposits: Protocols and policies," Master of Science in Technology and Policy Thesis, Massachusetts Institute of Technology, http://rpcp.mit.edu/∼reagle/commerce/commerce.html
92. The concept of precedent dependency is related to "path- dependence" as discussed by P. Kavassalis, 1995. "Technical change in the televisionindust ry: Between "path-dependence" and new flexibilities," Communications & Strategies, vol. 17, p. 77.
93. See I. de Sola Pool, 1983. Technologies of freedom. Cambridge, Mass.: Belknap Press.
94. See http://www.cpsr.org/dox/wiretap.html
95. These wiretaps would be very convenient. Law enforcement agency could request that all pertinent calls be routed to their own facilities for monitoring.
96. A. M. Froomkin, 1996. "The Internet as a source of regulatory arbitrage," In: Information, national policies, and international infrastructure. Forthcoming, Cambridge, Mass.: MIT Press, p. 331.
97. The significant civil issue is to whom are the default rules useful for? Democratic societies generally strive to make legislation fair and useful to all.
98. D. Post, 1995. "Anarchy, state, and the Internet: An Essay on law-making in cyberspace," 1995 Journal of Online Law, article 3, at http://fatty.law.cornell.edu/jol/jol.table.html
99. See Bert-Jaap Koops' extensive Crypto-Law Survey at http://cwis.kub.nl/ ∼frw/people/koops/lawsurvy.htm
100. Information on all of these points can be found in the Electronic Frontier Foundation "Privacy, Security, Crypto, Surveillance" archive at http://www.eff.org/pub/Privacy/
101. "In 1984, the President had issued a National Security Decision Directive, NSDD-145, which gave the intelligence agencies broad authority to peruse computer databases, for so-called 'sensitive but unclassified information.' A subsequent memorandum from John Poindexter, expanded this authority still further to include 'all computer and communications security for the Federal Government and private industry.' As the government's authority to control access to computerized information for the purpose of protecting national security expanded, the free of flow of information diminished. Stories of agents visiting private information vendors and public libraries soon followed. At the same time, a wide range of other activities by the government further threatened to restrict access to information." Marc Rotenberg's prepared testimony on The Computer Security Act Of 1987 (P. L. 100-235) and The Memorandum Of Understanding Between The National Institute Of Standards Technology (NIST) And The National Security Agency (NSA) Before The Subcommittee on Legislation and National Security, Committee on Government Operations U. S. House of Representatives. May 4, 1989. See http://www.epic.org/crypto/csa/ rotenberg_testimony.txt
102. See Electronic Frontier Foundation "Privacy - Crypto - ITAR Export Restrictions" Archive at: http://www.eff.org/pub/Privacy/Key_escrow/ ITAR_export/
103. See Electronic Frontier Foundation "Legal Cases - Crypto - Bernstein v. US Dept. of State: Legal Docs" Archive at: http://www.eff.org/pub/ Legal/Cases/Bernstein_v_DoS/Legal/
104. Legislation and reports on digital signature may be found at http://web.aimnet.com/∼software/industry_issues/1digsig.htm
105. See the Utah Digital Signature Legislation Base at http://www.gvnfo. state.ut.us/ccjj/digsig/
106. California Legislative Counsel's Digest, 1995. AB 1577 Digital Signatures.
107. The guideline is no longer freely available to the public. Information on the guidelines can be found at: http://www.intermarket.com/ecl/
108. See The United States Mint, A Brief History 1792 - 1995 at http://www.ustreas.gov/treasury/bureaus/mint/sub1.html
109. R. J. Anderson, 1995. "Crypto in Europe - Markets, law and policy," Conference on cryptographic policy and algorithms;
110. M. Bernkopf, 1996. "Electronic cash and monetary policy," First Monday, vol. 1, no. 1, http://www.firstmonday.org/?journal=fm&page= article&op=view&path[]=465;
111. A. M. Froomkin, 1996. "Flood control on the information ocean: Living with anonymity, digital cash, and distributed databases," Conference for the second century of the University of Pittsburgh School of Law Symposium;
112. A. M. Froomkin, 1996. "The Internet as a source of regulatory arbitrage," In: Information, national policies, and international infrastructure. Forthcoming, Cambridge, Mass.: MIT Press;
113. Building in big brother: the cryptographic policy debate. L. J. Hoffman, ed. New York: Springer-Verlag, 1995;
114. D. R. Johnson and D. Post, 1996. "Law and borders: The Rise of law in cyberspace," First Monday, vol. 1, no. 1, http://www.firstmonday.org/? journal=fm&ipaqe=article&op=view&path[]=468;
115. D. Post, 1995. "Anarchy, state, and the Internet: An Essay on law-making in cyberspace," 1995 Journal of Online Law, article 3, http://fatty.law.cornell.edu/jol/jol.table.html;
116. D. Post, 1995, "Pooling intellectual capital: Anonymity, pseudonymity, and contingent identity in cyberspace," Draft;
117. P. Panurach, 1995. "The Economics of digital commerce: An Analysis of digital cash, electronic fund transfers, and ecash," ecash@digicash.com: Tuesday, 19 Dec 1995 12:42:23 +0700;
118. and J. Shearer and P. Gutmann, 1996. "Government, cryptography, and the right to privacy," Journal of Universal Computer Science, http://hyperg.iicm.tu-graz.ac.at/ qovernment_cryptography_and_the_right_to_privacy_htf;sk=2F074060
119. Reuters (Vienna), 1996. "Pressure on Austrian bank laws," Financial Times (London), (April 12).
120. Quoting from an electronic mail message addressed to the author, "We can execute your financial transactions, move cash from bank to bank, from brokerage accounts to bank, attorney, escrow account, etc. You instruct us by PGP as to what you need accomplished."
121. Investor's Business Daily (1996), "IRS, FBI eye Internet with suspicion," vol. 9 (January), p. B1; summary can be found on Edupage for 9 January 1996 at http://educom.edu/edupage.old/edupage.96/edupage-01.10.96
122. J. P. Hawley, 1987. Dollars & borders: U. S. government attempts to restrict capital flows, 1960 - 1980. Armonk, N. Y.: M. E. Sharpe, p. 170.