New Fundamental Law of Network Economics

intersys writes "A new fundamental law of economics has been formulated by Rod Beckstrom, former Director of the National Cyber Security Center. In Words: The value of a network equals the net value added to each user's transactions (PDF) conducted through that network, valued from the perspective of each user, and summed for all. It answers the decades-old question of 'how valuable is a network.' It is granular and transactions-based, and can be used to value any network: social, electronic, support groups, and even the Internet as a whole. This new model or law values the network by looking from the edge of the network at all of the transactions conducted and the value added to each. One way to contemplate the value the network adds to each transaction is to imagine the network being shut off and what the additional transactions' costs or loss would be. Beckstrom's Law replaces Metcalfe's law, Reed's law, and other concepts which proposed that the value of a network was based purely on the size of the network (and in the case of Metcalfe's law, one other variable)."

Comments

Not even really a research paper...

[bradley13]

...at least, not in the academic sense. Though there are some research papers that contribute just as little. At its base, this is how Value-Added-Tax is calculated. Wheel, reinvented, wow...

Re:Wouldn't that be a theory?

[flaming error]

The "firmer proof" is only required if you want the scientific community to call it a law.

The standard for getting your fifteen minutes of fame is considerably lower.

Re:Shut off

[Red Flayer]

If you really want to use a wife analogy, then we can do that.

The value of your wife is the summation of the change in transaction costs if you replaced her with a null wife (as opposed to a dull wife, which you may already have).

If you replace her with a more efficient wife, then the old wife's value is less than the new wife's, but it would be almost always non-zero.

Beckstrom's approach gets at something, just as most simple-minded reductions have some grain of truth in them. But it's also, in the large picture, mostly wrong.

Says you. I disagree... I think it's a good estimation of the value of a network. The key is to properly assign the transactional costs/benefits of the network; if they are overstated, then the value of the network could be multiplied greatly. Summation of transactional gains/losses for all users, from the perspective of each user? That's a whole lot of transactions. Even a small network of say, five nodes, with twenty transactions between each pair of nodes. There are ten node pairs, so 200 transactions... double the size of the netork and there are now 900 transactions. In a large network, a bad estimate of transactional value could skew the network value way off.

Too vague to be useful

[HiThere]

Value is an ill-defined term, and different observers will value the same transaction differently. This isn't only because it's ill-defined, but also because valuation is observer centric.

Because of this the law is both too vague to be useful, and silly. Many observers will only value some of the transactions. Others will value some of the transactions negatively. Etc.

E.g., what is the value of the advertisement that may appear at the top of this page? To slashdot it's valued as a source of income. To the advertiser it's valued as a way of attracting business. To most readers it's ignored. To some readers it's a nuisance. Each means of valuing the ad gives it a different valuation...and each valuation is clearly observer-centric.