Friday, December 12, 2014

White Hat vs Rent Seeking

Firms will often test security measures before rolling them out. They'll subcontract so-called "white-hat" hackers to test the systems to see how easy it is to gain entry. The White Hats then report back to the firm the results of their investigations so that changes can be made, patches applied, and systems secured.

Public Choice economists, along with a number of other disciplines, have noticed that quite a bit of regulatory legislation ends up benefiting the industries under regulation. Sarbanes-Oxley, for example was ostensibly intended to discipline naughty firms engaging in naughty accounting practices. The result of SarbOx, instead, is that it puts an enormous regulatory roadblock in front of any firm seeking to grow beyond the capacity that will trigger its requirements. It creates, in the parlance of economists, a barrier to entry, allowing incumbent firms the latitude to behave more like the textbook monopolists your econ 101 professor warned you about.

White Hat hacking is quite euvoluntary indeed. It's an excellent service that helps enhance customer confidence and reduces risks inherent in electronic commerce. Well, at least when it works as advertised. What do you think about a legislative equivalent? Politics is exchange, after all. Right? How about having a few independent contracting firms take a stab at finding all the "unwanted" loopholes in a piece of legislation and showing how to exploit them so that bills can head back to committee before they hit the floor? Wouldn't that be in the public interest?

Well, if you agree with Zach Weiner, yes. If the purpose of the legislature is solely to act in the public interest, then it'd be great to dot all the i's and cross all the t's before voting. But if I'm right and the legislature is chiefly Humean, there will be absolutely no interest in independent regime arbitrage hacking prior to the release of legislation, as it is not in the unspoken interests of the political elite.

At least, this is my prior belief. I'm not exactly sure how you could test it unless you actually had a legislator's ear. I could say "I bet that within 25 years, there will be no equivalent to a legislative white hat org vetting proposed legislation," but that wouldn't really vindicate the Humean model of political economy, would it? In the meantime, I thought it might be a cute little thought exercise. A what-if to keep in mind for when Andreessen finally funds my comet utopia.

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Do you have suggestions on where we could find more examples of this phenomenon?