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November 2006

Face-Off: Schneier, Ranum debate security regulations

Bruce Schneier Point Regulation is about economics. Here's the theory: In a capitalist system, companies make decisions based on self-interest. This is good; we don't want companies acting as public charities, we want them acting as for-profit entities. But, there are effects of company decisions not borne by companies—these are "externalities." Companies don't always take externalities into account because, well, they're someone else's problem. If we want externalities to factor into company decisions, we have to make externalities internal. Then, the natural engine of capitalism will take over. An easy example: A company pollutes a river, and people downstream die. No one in the company lives downstream, no customer lives downstream, so the company doesn't care. It's a classic externality. If society wants the company not to pollute the river, it has to remove the externality. Liabilities (allowing the people who live downstream to sue) and regulations (making it illegal to pollute the river) do that. A rational company will ...

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