Critical resource aninstitutionaleconomicsofthe internet26

Telecommunications Policy 34 (2010) 405–416

Contents lists available at ScienceDirect

Telecommunications Policy
URL: www.elsevierbusinessandmanagement.com/locate/telpol

Critical resource: An institutional economics of the Internet
addressing-routing space
Milton Mueller a,b,Ã
a
Syracuse University, School of Information Studies and Technology, USA
b
University of Delft, the Netherlands

a r t i c l e in fo abstract

This paper links the analysis of IP address policy to the established vocabulary and
Keywords: concepts of institutional economics. Internet addressing and routing are usually
IP addresses discussed in technical terms, yet embedded in this highly technical discourse are a
Internet governance number of critical economic concepts, such as scarcity, externalities, common pool
Institutional economics resources, tragedy of the commons, and conﬂict over the distribution of costs. To solve
Regional Internet Registries these problems, governance institutions native to the Internet have evolved. Yet despite
Common pool resources the centrality of addressing and routing to Internet governance, there is very little
IPv6
research literature that bridges economic, institutional and technical discussions of IP
Internet protocol version 6
addressing and routing. This paper connects the techno-economic discussion to analysis
ARIN
RIPE of institutions and governance arrangements.
APNIC & 2010 Elsevier Ltd. All rights reserved.

1. Introduction

‘‘Address space exhaustion is one of the most serious and immediate problems that the Internet faces today.’’1 The
reader might assume that the statement was drawn from a recent Internet Engineering Task Force (IETF) meeting or a
current trade journal. Surprisingly, it was published in May 1992—in the very earliest stages of the Internet’s opening to
public use (Wang & Crowcroft, 1992). It reveals the persistence of address space management as a policy issue in Internet
governance. Today, almost two decades later, there are again worries about the exhaustion of the Internet address space
(Hain, 2005). This is fueling a drive to migrate to a completely new but incompatible Internet protocol with a much larger
address space: Internet Protocol version 6 (IPv6). Given the dominance of the Internet in today’s communications
environment, this (hoped-for) migration and the associated addressing-routing issues are among the most important
issues in contemporary communications policy.
Addressing and routing are usually discussed in technical terms (e.g., Meng et al., 2005; Meyer, Zhang, & Fall, 2007).
Embedded in this highly technical discourse, however, are a number of critical economic issues, such as managing scarcity,
handling externalities and switching costs, avoiding a tragedy of the commons, or negotiating the distribution of costs. To
solve these problems, governance institutions native to the Internet have evolved. Yet despite the centrality of addressing
and routing to Internet governance, there is very little research literature that bridges economic, institutional and technical
discussions of IP addressing and routing. The premise of this paper is that the techno-economic discussion must be joined

Ã Correspondence to: 307 Hinds Hall, Syracuse University, Syracuse, NY 13244, USA. Tel.: + 1 315 443 5616.
E-mail address: Mueller@syr.edu
1
This paper evolved out of consulting work commissioned by the International Telecommunication Union. The author wishes to acknowledge the
cooperation and support of Xiao Ya Yang and Richard Hill of ITU-SP in particular. The content of this paper reﬂects the views of the author alone.

0308-5961/$ - see front matter & 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.telpol.2010.05.002

406 M. Mueller / Telecommunications Policy 34 (2010) 405–416

to a critical analysis of institutions and their resource governance arrangements before it can provide an adequate basis for
policy.
This paper provides a basic analysis of the institutional economics of IP addressing and routing, with an emphasis on the
way allocation and assignment policies are being applied to the new IPv6 address space. The discussion is divided into four
sections. Section 2 analyzes the techno-economic characteristics of IP addresses and their interaction with routing in
abstract terms. Section 3 analyzes the institutions that have evolved to manage the resources. Section 4 focuses on the IPv6
address space, and analyzes the standards, policies and fee structures that are starting to be applied to IPv6. Section 5
briefly identifies some of the open issues regarding how IPv6 might raise new policy issues and alter some of the economic
and institutional pillars supporting the current address management regime. The primary purpose of this paper is to link
the analysis of IP address policy to the established vocabulary and concepts of institutional economics.
The existing literature in this area is thin. The most comprehensive contribution so far is DeNardis (2009), which
explains the role of the address space in Internet protocol development and documents some of the history and hopes
surrounding the development of IPv6. An OECD report (Perset, 2007) provided a useful overview of the debate over address
scarcity and IPv6 but, like many government agency reports, lacked theoretical grounding and had to be vetted by parties
with vested interests in its analysis. A policy analysis by Mueller and Kuerbis (2008) flags some of the high-level
institutional issues raised by IP addressing. Other recent literature has focused on the heated debate over the possibility of
trading increasingly scarce IPv4 addresses (Lehr, Vest, & Lear, 2008; Mueller, 2008; Edelman, 2009; Hofmann, 2009; Dell,
2010). None of these papers, however, link the techno-economic characteristics of the resource to a theoretically informed
analysis of the institutions that have developed to manage them.

2. Techno-economic features of IP addressing/routing

2.1. The address space

The Internet protocol creates a virtual resource, the IP address space, of finite dimensions. It is similar to a block of radio
frequencies dedicated to a specific service by technical standards. The address space size is fixed by the technical standards
defining the Internet protocol. IP addresses are scarce in the strict sense that economic theory defines scarcity: it is not
possible for all of us to have all of the addresses we would like at zero cost. As a virtual resource, they are not ‘‘consumed’’
or used up when put into production; rather, they are occupied just as radio spectrum is occupied. When the occupation of
one party ends, the resource could be available for others to occupy. In Internet discourse, the reservation of an address
block to a single network or administrator for direct use is called an ‘‘assignment;’’ the occupation of a larger contiguous
block of addresses by an intermediary for assignment to others is called an ‘‘allocation’’.

2.2. The routing space

This relatively simple picture of a fixed resource space breaks down when routing is brought into the picture. Routing is
the process that guides the movement of Internet protocol packets from their origin to their destination. The possession of
IP addresses is significant and valuable only insofar as they can be used to route packets on the public Internet. Likewise,
routing needs globally unique IP addresses in order to define routes that can guide packets to their destination. The policy
problem is not simply one of efficiently allocating IP address resources; it is also the efficiency and scalability of Internet
routing. Analysis of the resource space is complicated by the interdependence of routing and addressing, and the need to
trade one off against the other. Thus, the resource with which this report is concerned is referred to as the ‘‘routing-
addressing space’’ rather than solely as ‘‘IP address resources’’, while recognizing that addresses and routes are
distinguishable parts of that resource space.
Routing is the automated process that directs Internet protocol packets from their origin to their destination. On the
Internet, the scaling properties of routing operations and equipment are affected by the way address blocks are distributed
amongst networks. IP addresses can be described as part of the language that routers speak to each other. Internet routing
protocols consider the IP address to be composed of two parts: the address of the network (the prefix) and the address of
the connected computer (the host). Routing through the Internet is based on the network portion of the address. A router
stores its best and alternate routes for each prefix and uses this information to construct a forwarding table (the routing
table) that controls the movement of each incoming packet to the next hop in its journey. Routers also transmit
announcements to other routers about the address prefixes to which it is able to deliver packets, and this information is
incorporated into the tables of other routers. Currently, interactions among routers are based on an Internet standard
known as the Border Gateway Protocol (BGP).2 Thus, routers are engaged in constant, automated conversations with each
other that exchange network prefixes and other information to keep every router informed about how to reach hundreds of
thousands of other networks on the Internet.
BGP exchanges among independent network operators are rife with externalities (see, e.g., Huston, 2001, p. 13; Cowie,
2009). There are two major routing externalities: (1) the rate of change in one network’s routing announcements and (2)

2
Rekhter and Li (1995) and Rekhter, Li, & Hares (2006).

M. Mueller / Telecommunications Policy 34 (2010) 405–416 407

the size of the routing table. Rapid change in routing announcements can increase the processing load of other network
routers all over the world. And if no policy limits are placed on the number of route advertisements, it is possible that the
size of the routing table in the largest and most interconnected Internet service providers (known as the default-free zone)3
could grow until it exceeds the processing power of their routing equipment. This is an externality because when one
network adds announcements of many different fragments of an address block to the routing space it does not make its
own operations much more expensive (and may make them less expensive or gain revenue sources as a result), but when
such behavior is repeated across many other actors it makes the size of the table in the BGP routers used by ISPs larger and
larger, making routing equipment more expensive. Some have described this problem as a tragedy of the commons
(Huston, 2001; Rekhter, Resnick, & Bellovin, 1996).

2.3. Route aggregation

During the early-mid-1990s, as the Internet took off as a public medium, the number of prefixes listed in routing tables
began to grow at an alarming pace. Some felt that the scaling problem threatened the viability of the Internet. In an
attempt to control this problem, the IETF and ISPs introduced provider-based address aggregation, a hierarchical approach to
address allocation that strives to minimize direct assignment of IP addresses to end users. It gives network service
providers (ISPs) larger address blocks, and encourages most other Internet users to use sub-allocations from these larger
address blocks, which are aggregated by the intermediary provider into a single route announcement. This minimizes the
number of entries in the routing tables, and also reduces the amount of traffic exchanged among routers—two very
important economic efficiency benefits.
But provider-based route aggregation has two other economic consequences. First, it increases end-user switching costs
in the market for Internet services. The customers of ISPs cannot take their address blocks with them when they change
service providers. Second, it militates against trading, subdividing or other uncontrolled transfers of address blocks among
end users and organizations. The ability to move unused address blocks or portions of a block from one user to another
would greatly increase the efficiency of address space utilization. But such transfers would also require breaking up
contiguous blocks of addresses into separately routed parts, undermining the efficiency of routing.

3. The governance regime

With a basic understanding of the techno-economic features of addressing-routing in place, this section integrates
institutions into the analysis. The current regime for governing IP address-routing resources is organized around Regional
Internet Registries (RIRs). The first address registry was a centralized function performed by U.S. research and military
contractors. As the Internet grew and became internationalized and privatized, the registry function was delegated to
nonprofits serving different world regions. The rationale for RIRs was first set out in RFC 1174 (Cerf, 1990). There are now
five RIRs.4
In the early 1990s, as noted earlier, the Internet was beset by serious scaling problems, involving both routing table
growth and address space depletion. In response, the IETF created a mixture of technical and policy adjustments that
established aggregation and conservation as basic principles for address-routing governance. Classless Inter-Domain
Routing (CIDR) was defined and implemented as a way to make more efficient use of the diminishing IPv4 address pool
(Fuller, Li, Yu, & Varadhan, 1993). The provider-based leasing model approach to routing, mentioned above, was developed
around the same time and codified in RFC 2008 (Rekhter & Li, 1996). The RIRs’ policies and practices incorporated CIDR and
provider-based aggregation, and their role was formalized in RFC 2050 (Hubbard, Kosters, Conrad, Karrenberg, & Po, 1996).
In 1997 the U.S.-based central Internet registry was fully privatized and became ARIN; in 1998 there was partial
privatization of IANA alongside the creation of ICANN. The RIRs created a more formal contractual regime, and fee
structures for membership/address blocks were put into place. Thus, by 1997 the regime had converged around the three
principles of registration (maintaining the uniqueness of addresses, aggregation and conservation). Aside from growing
and becoming more professional, little changed during the next decade. The RIRs are now a mature transnational
governance regime composed of nonprofit, private sector membership organizations that govern primarily through private
contract. The membership is composed of autonomous systems; that is, organizations that operate networks and utilize
Internet addresses.

3
‘‘Default-free zone’’ refers to the collection of all Internet autonomous systems (ASs) that do not require a default route to send a packet to any
destination. A default route is used by a router when no other known route exists for a packet’s destination address. Typically, defaults are used by
smaller networks which rely on larger Internet service providers to find the destination. ASs in the default-free zone are generally the largest and most
interconnected networks.
4
ARIN (established in 1997), but inheriting functions performed by Jon Postel and other government contractors since the early 1980s, provides the
registry/governance function for North America. RIPE-NCC (established in 1991) serves Europe and the Middle East. APNIC (established in 1995) is the
institution for the Asia-Pacific region (which includes India). LACNIC (established in 2002) serves the South American continent and the newest RIR,
AFRINIC (established in 2005), serves the African continent.


Table 1
Classification of goods..Adapted from Ostrom, 2005, p. 24

Difficulty of excluding users Subtractability of use (rival occupation or consumption)

Low High

Low Toll goods Private goods
High Public goods Common pool goods

3.1. Common pool governance?

Various discussions of IP addresses, including statements by the Internet address registries themselves, assert that
addresses are ‘‘public resources’’. ‘‘Public resource’’ is an unscientific term, however; its meaning varies and the differences
in usage often reflect political agendas.5 Institutional economics provides a more precise and useful distinction between
four broad classes of goods: public goods, private goods, club goods, and common pool resources. The distinctions hinge on
the degree to which resources are rival in consumption (i.e., one person’s consumption does not prevent anyone else from
using it) and excludable (i.e., the degree to which an owner or appropriator of the resource can prevent others from
appropriating it.)
With public goods, consumption is nonrival and exclusion is difficult or impossible. With private goods, consumption is
rival and exclusion is relatively easy. Thus for private goods, market allocation is the most common option (although it is
usually shaped by government regulations or subsidies in some way). The resource is allocated by means of exchanges of
property rights among private owners; prices go up as supply goes down and conservation incentives adapt accordingly.
Resources do not fall unambiguously into these categories, and their status can change. Encryption technology, for
example, made it possible to exclude owners of a radio receiver from access to a broadcast signal, transforming it from a
public good situation to a toll good.
Common pool resource management regimes are responses to a unique set of economic conditions. Consumption is
rival, and thus private appropriation must be rationed or limited in some way. But if exclusion is too costly, or
interdependencies among users of the resource make it too difficult to define and enforce tradable property rights, then a
private market may not work. An example of a resource which faces difficulty of exclusion is a school of fish in the ocean,
which cannot easily be fenced in. In these cases collective governance rules can take the place of market prices as the
allocator of the resource.

3.2. Rival consumption and exclusion

If the framework in Table 1 is applied to IP addresses, it is not immediately apparent why IP addresses are currently
governed on a common pool basis. Clearly, address assignments and allocations are rival. If one network occupies an
address block, another network cannot also use it on the global Internet without creating conflicts in routing. Addresses
must be exclusive and globally unique to function properly.
Exclusion is also possible, although not in as straightforward a way. When a user appropriates a natural resource like a
mineral or a fish from the ocean, the act of possession and consumption by one person physically prevents others from also
appropriating the resource. The act of assigning numbers to host computers on a network, however, does not by itself
prevent anyone else from also assigning the same numbers to their own hosts. To maintain the exclusivity of assignments
requires collective action in the form of a registry accepted by Internet network operators as an authoritative coordination
instrument.
IP address registries meet this need. They keep track of which organizations are using which address blocks and ensure
that the allocations are exclusive. But the registry’s ability to maintain exclusivity depends heavily on its acceptance and
recognition by Internet service providers as a guide to their routing decisions. To enforce exclusive assignments of IP
addresses, ISPs must refuse to route traffic to another network’s address if it is not registered as the legitimate holder of
that address. The governance power of the registry, in other words, depends heavily on the assent and participation of the
ISPs who operationalize routing. An address registry cannot simply take back an assignment or allocation in the way that
physical property is repossessed; it can only eliminate a party from the list of authorized holders and hope that ISPs adjust
their routing practices accordingly.
Thus while exclusivity is more complicated, it is still clear that maintaining exclusivity in the occupation of IP addresses
is perfectly feasible. Laws, regulations or contracts could give registered address block holders a right to take legal action
against ‘‘trespassers’’ who occupied address blocks that conflicted with those of a registered user. This leaves a key
theoretical puzzle: why don’t IP addresses fall into the private goods quadrant of Ostrom’s matrix?

5
It can be used to mean state-owned resources; or privately owned but state-regulated; or it can simply mean a resource that is publicly shared; or it
can mean a public good in the strict economic definition described below, or it can mean an essential facility as the term is used in antitrust law.


The answer is that the choice of a common pool regime and its restrictions on address ownership and trading were
motivated neither by difficulties of exclusion nor by the absence of rival consumption. Rather, common pool governance
emerged because of the decision to use address allocation as a tool for enforcing route aggregation. Concerns about
aggregation prevented market trading of addresses, and in the absence of a market price system, some other method had to
be used to limit appropriation of scarce number resources. To put it differently, participants in the regime are as concerned
about conserving routing table slots as they are about conserving address blocks, and the interactions of routing
announcements and the structure of address block allocations pushes the industry into a common pool arrangement.

3.3. Appropriation limits

In the absence of tradable property rights, the existing IP address regime rations and conserves the resource by
leveraging the IP address registry function. The registry is more than a mere coordinative device; it also acts as a
gatekeeper to the address space. The grant of exclusivity and legitimate title is linked to administrative limits on the size of
the address block any appropriator can claim. Appropriation limits are based on administratively-established technical
criteria, known in the industry as ‘‘justified needs assessments.’’ Applicants for address space submit network plans and
information about utilization levels; the RIRs review these plans and award address blocks accordingly. In short, this is in
some ways a centrally planned economy.
This approach to conservation is fueled not only by practical concerns about aggregation; nearly two decades of
centralized governance by a tightly-knit community of engineers has reinforced a quasi-religious commitment to
communitarian methods. This has produced a resistance to the idea of owning, trading, or speculating in IP addresses that
goes far beyond the original technical rationale based on the need for aggregation. Though contested and waning, this
ideology runs deep within the RIRs.6

3.4. Reclamation and reuse

The problem of reclamation is an important and neglected topic in address governance. Those who have been assigned
or allocated addresses but no longer use them are, in principle, supposed to return them to the common pool to make them
available for use by others, and this is supposed to be one of the primary efficiency benefits of a common pool regime. But
resource reclamation has been a persistent weak point of the current regime. There are few positive incentives to return
unused blocks. RIRs have no contractual authority to reclaim IPv4 resources from the so-called ‘‘legacy’’ holders who
received their allocations before the contractual regime was put into place. Even for organizations that contract with the
RIRs, their ability to monitor the actual use of addresses and reclaim resources from current holders is weak. The scalability
of detailed monitoring or auditing of thousands of individual organizations is questionable. Thus, huge portions of the IPv4
address space are thought to be unused or underutilized, and, contrary to the communitarian ethic underlying the common
pool regime, organizations are not returning them to the common pool. However, a system of digital certificates that ties
address allocations to specific organizational identities and can be automatically verified could change all that.

4. The IPv6 addressing-routing space

Internet protocol version 6 (IPv6) is the next-generation protocol developed in the mid-1990s by the Internet
Engineering Task Force to overcome the projected address shortages of the classical Internet protocol (IPv4). There is still
some uncertainty about whether the migration to the new IPv6 standard will succeed at all (see DeNardis, 2009, chap. 4;
Elmore, Camp, & Stephens, 2008). A complete discussion of that issue is outside the scope of this paper. What is known is
that the only real advantage of the new, incompatible Internet protocol over the established one is its larger address space.
With 2128 addresses in the IPv6 space compared to the 232 addresses of IPv4, the new protocol constitutes an enormous
expansion. Practically, the IPv6 address space is almost infinitely large.

4.1. Conservation and allocation policy for v6

The groundwork for IPv6 address allocation policy was established by the IETF, which developed and ratified the new
standard. To facilitate the implementation of the IPv6 standard, the IETF made two important recommendations.
First, it released only 15 percent of the available global unicast IPv6 address pool for allocation by the Regional Address
Registries, and left the remaining 85 percent ‘‘reserved.’’ The reservation was explicitly acknowledged as a hedge against
the possible need for different, possibly more conservative allocation policies in the future.
Second, the IETF escalated the scale of allocation policy. The critical principle underlying IPv6 allocation policy is that
allocations are made to applicants based not on the number of individual IP addresses in a block, but on the number of
subnets. Subnets are large blocks of addresses which can be used to form networks. The smallest unit of subnet allocation in
IPv6 is the /64, a subnet size that contains the capacity for 18.4 thousand trillion (18,446,744,073,709,500,000) individual

6
See the literature on address transfer markets alluded to earlier.


IPv6 addresses. Note: this is the smallest unit of allocation. It is contemplated that /64 blocks will be assigned to home users
or mobile phones.
The basic unit for making allocations to networks of corporations, schools or other end-user organizations is the /48. A /
48 subnet contains 65,536 subnets of the /64 size. The basic minimal unit for Internet service providers is supposed to be
the /32, which contains 65,536 /48 subnets and 4.3 billion /64 subnets. In other words, a /32 contains as many /64 subnets
as there are addresses in the entire IPv4 address space. These decisions are set out most clearly in two key RFC documents:
RFC 3177 (Internet Architecture Board, 2001) and RFC 5375 (Van de Velde, Popoviciu, Chown, Bonness, & Hahn, 2008). RFC
5375 openly acknowledges the detachment of allocation policy from actual counts of computers or devices on the
network.7 Measures of ‘‘host density’’ for IPv6 refer not to the actual number of computers or other devices connected, but
to the number of different network ‘‘sites’’ to which a subnet has been assigned (Van de Velde et al., 2008; see also
Huitema, 1994).
While its approach may seem extraordinarily liberal, RFC 3177 enumerated several reasons, many of them attractive,
for taking this approach to allocation. Most notably, a standardized, provider-independent boundary between the network
portions of address allocations is supposed to make it easier for users to change ISPs without internal restructuring or
consolidation of subnets.8 Even without a change of ISPs, these standardized boundaries may make renumbering easier.
Also, large initial allocations minimize the cost burden and administrative overhead associated with ‘‘needs assessment’’
by the RIR; it allows ISPs and their subscribers to grow substantially without any need to return to their ISP or RIR with
new (possibly costly) requests for additional (possibly non-contiguous) address blocks. This is, in fact, a very important
policy departure from the RIRs’ IPv4-era policy of increasingly restrictive and bureaucratic needs assessments. Initial
allocations are no longer based on ‘‘demonstrated need’’ but on some kind of basic classification of the applicant.9 In their
implementation of these guidelines, most RIRs have proposed /32 as the basic initial unit of allocation to Internet service
providers. Before requesting more, the RIRs initially proposed to require that these blocks attain a host-density ratio of .80.
Later, the recommended HD ratio was increased to .94.

4.2. Does conservation even matter?

If the IPv6 address space is so indescribably large, is there a need to worry about conservation at all? The
mathematically large size of the address space has encouraged some uncritical complacency. Statements that there are
more IPv6 addresses than grains of sand on the world’s beaches or atoms in the universe imply that the number is
inexhaustible.10 However, a closer examination reveals that concerns about conservation still exist and cannot wisely be
ignored. As the discussion above explained, the basic units of allocation are also extremely large, and the distribution of
such blocks will, without question, result in the ‘‘waste’’ of vast quantities of bit combinations that could in theory be used
as addresses. In the intermediate term, at least, very few home networks or small office assignees of /48 address blocks are
likely to make use of any but a tiny fraction of the 1,208,925,819,614,620,000,000,000 bit combinations their assignment
contains. Some may grow into that space or discover new applications of networking that make use of it, but many will not.
In justifying its liberal policy the IAB in RFC 3177 contrasted the 178 billion /48 prefixes available under their plan with ‘‘10
billion, which is the projected population on earth in year 2050.’’ The IETF thus implied that everyone on the planet could
be given a /48 and there would still be plenty to spare. In an attempt to raise a flag of caution, IBM’s Thomas Narten (2005)
noted that giving every human on the planet a /48 would occupy ‘‘fully 1% of the available address spaceyin 50 years,’’
which he claimed showed that the address space was ‘‘nowhere near practically infinite.’’
While the IETF statement is optimistic and expansive and the Narten statement is cautious, both calculations reveal
how little attention is paid in Internet circles to the economic importance of reclaiming abandoned, unused or
underutilized addresses. Both statements assume that giving a /48 address block to every person on earth is a static, one-
time decision that would result in an outflow of only 10 billion /48 address blocks after 50 years. But this calculation is
overly simplistic and, as a result, far too low. It is necessary to calculate the ongoing flow of address blocks to a population
that is constantly adding new members (hence making new allocations) and whose ranks are depleted by deaths (thus
abandoning allocations which must either be reclaimed or wasted). Assume that none of the allocations freed up by deaths
are reclaimed. In that case, depending on the birth and death rates, the number of address block allocations required to
give every member of the human race a /48 increases by a factor of three; i.e., it could consume 30 billion address blocks or
more, not just 10 billion.11 Note that organizational populations have births and deaths, too; that is, ISPs, other service
providers, and end-user networks are constantly coming into and going out of existence. Unless there is effective

7
‘‘The practically unlimited size of an IPv6 subnet (264 bits) reduces the requirement to size subnets to device counts for the purposes of (IPv4)
address conservation.’’ (Van de Velde et al., 2008, p. 2).
8
For example, if ISPs consistently hand out /48s to end-user organization sites, regardless of size, then an organization that switches ISPs can
renumber easily by simply changing the network prefix in all their site addresses. (Whether ISPs will go along with this remains to be seen.)
9
This approach also allows sites to maintain a single reverse-DNS zone covering all prefixes.
10
Europe’s Information Society thematic portal, IPv6: Enabling the Information Society. http://ec.europa.eu/information_society/policy/ipv6/index_en.
htm.
11
One must sum the initial allocation to the population and all births over the period.


Table 2
Network number statistics as of May 1992.
Source: Wang and Crowcroft (1992).

Available Allocated Percent allocated

Class A 126 49 39
Class B 16,383 7354 45
Class C 2,097,151 44,014 2

reclamation – which cannot simply be assumed but can only be a product of institutionalized policies and incentives – the
effective utilization rate projected must be increased accordingly.
Uncertainty about future use, and historical precedent, creates another reason for caution about the need for
conservation. The IPv4 space was also considered to be enormous and practically inexhaustible in the early days of the
Internet’s development. For the first decade of the Internet’s existence (1982–1992), class-based allocations were made to
government agencies and private sector organizations participating in U.S. government-funded research and develop-
ment.12 Near the end of this period as the Internet gradually opened to larger sectors of society and the world, a
surprisingly large amount of the IPv4 address space was allocated. Table 2 displays the numbers.
It is apparent from these statistics that the initial allocation policy embedded in RFC 791 and its implementation not
only underestimated overall demand, but completely failed to anticipate the actual structure of demand. Demand for
address blocks was concentrated in the Class B range, whereas demand for small, 256-host networks was much lower than
expected. Moreover, classful allocations were structurally wasteful, in that applicants whose need fell somewhere between
the sizes of the defined classes had to be given the next highest block size regardless of whether they actually needed or
wanted the entire additional increment.
The impact of these legacy allocations still lives with us today. Latecomers to the Internet party have been greeted with
more restrictive address policies. A document submitted to APNIC by Millet and Huston (2005) called attention to the
possibility of a more rapid than expected occupation of available address resources due to the capacious initial
subnet allocation policies. ‘‘From a public policy perspective,’’ they wrote, ‘‘we stand the risk of, yet again, visibly creating
an early adopter reward and a corresponding late adopter set of barriers and penalties.’’ This campaign from leading
Internet figures in 2005 led to a tightening of RIR initial allocation policies. ARIN and APNIC eventually adopted a more
conservative policy on initial IPv6 allocations, offering a /56 rather than a /48 to certain classes of users, and increasing the
host-density ratio required for additional allocations from .80 to .94.
From an economic standpoint, there are structural similarities between the classful allocations of 1982–1992 and the
IPv6 recommendations of the IETF. The IETF proposes to give out /48s on the basis of one’s status as an organization or a /
32 on the basis of one’s status as an ISP, with little regard to the variance in the actual requirements of each end user or ISP
within that category.
But the costs associated with withholding addresses from enterprises unnecessarily must not underestimate. A century
is a very long time for a communication protocol to last. It is difficult to think of a single electronic communication system
standard that has survived that long without becoming obsolete. Withholding addresses that could be profitably used now
on behalf of future occupants or applications that may never materialize is also a form of waste.
Clearly, conservation or appropriation limits of some kind are still needed—but it is also clear that (if we ever get to an IPv6
world) allocations can indeed be much more liberal. The main issue here is one of uncertainty about where is the optimal
point on a tradeoff curve. This is exactly where economic incentives and institutions might be most useful as a mechanism for
adaptation. A critical factor in conservation will be efficient reclamation policies and incentives. Oddly, neither Narten (2005)
nor Millet and Huston (2005) nor the IETF discuss the incentive for occupiers to release unused or underutilized address
resources. Providing incentives for more efficient reclamation could extend the life of the usable address space considerably.

4.3. RIR fees and IPv6

Address fees are a potentially important conservation tool. Officially, the RIRs present themselves as member-based
organizations and their fees as membership dues that recover the cost of their services. Nearly all of them are
uncomfortable with any assertion that they are charging fees for IP addresses. The RIRs do provide important services, such
as maintaining the registry and the Whois lookup, performing ‘‘needs’’ assessments, supporting policy discussion
processes, and so on. On the other hand, some RIR fees reflect a positive correlation between the fee size and the size of a
member’s IP address allocations. And it also seems logical, in both equity and efficiency terms, that people who occupy
more address space should pay more, especially when they are commercially exploiting the addresses. But there is an

12
The earliest address allocations were based on the three classes of addresses defined in RFC 791, the basic document defining the Internet protocol.
Class A addresses, which correspond to what would now be called a /8, have a network part of the address that is 8 bits long, leaving room for unique
addresses for 16.7 million hosts. Class B addresses (now referred to as a /16) had a network prefix of 16 bits, leaving room for 65,556 unique addresses.
Class C blocks (a /24) allowed for only 256 unique addresses for hosts.


Fig. 1. Comparative fee structures for IPv6 addresses, the 5 RIRs.

important difference between fees as methods of recovering the cost of RIR services and fees as rationing devices to
encourage conservation of the address space. The RIRs are currently sitting in an uncomfortable space between the two.
Insofar as currency differences make direct comparison possible, there is minimal variance in the fee levels across the
RIRs for IPv6 address blocks of size /32 and smaller. The normal fees for /32s among ARIN, LACNIC and AFRINIC are
identical (and are all denominated in USD). The fees for address blocks larger than /32, however, vary widely across RIRs.
RIPE-NCC seems to have lower rates (denominated in Euros) and a flatter curve, while APNIC seems to have higher rates
(denominated in Australian dollars). But in all cases, the fees charged for IPv6 addresses by the three largest RIRs (ARIN,
APNIC and RIPE) get larger as more addresses are occupied above the /32 level. This implies that fees are intended to
perform a conservation function, and these conservation incentives seem to be directed at larger ISPs. AFNIC and LACNIC,
on the other hand, have very simple, two-part fee structures that only distinguish between ‘‘small’’ and ‘‘large’’ allocations,
with the dividing line being the /32. All RIRs seem to discriminate between recipients of /32s and /48s based on technical
assessments of need and do not seem to rely much on pricing to encourage conservation of address blocks at that size.
However, a recent fee restructuring at APNIC ties fees more closely to block size. APNIC fees respond logarithmically to
increases in the number of addresses allocated. This policy could constitute an interesting new trend in RIR resource
management.
Contributing further to the view that fees serve a policy function, ARIN has discounted their standard IPv6 address fees
from 2008 to 2011 in an attempt to encourage migration to IPv6. Post-discount, the initial fee for a /32 allocation from
ARIN in 2009 is a paltry $562.50 a year. (Remember: a /32 block contains as many /64s as the entire IPv4 address space.) The
discounted ARIN fees are very similar in size and structure to the RIPE-NCC fees. Similarly, LACNIC has exempted members
having only IPv6 addresses from paying membership fees until July 1, 2012. It appears that, no RIR has raised fees for IPv4
addresses as the free pool approaches depletion (see Fig. 1).
Once fees are related to the amount of address space consumed, it is evident that RIR fee structures provide massive
volume discounts to ISPs (with the exception of APNIC’s recently-reformed fee structure). Larger occupiers of the space
enjoy a discount of about 105 in terms of the price per address. Also, while there is much noise against the idea of ‘‘paying
for address space’’ in some quarters, the fact of the matter is that ISPs use address space as an input into their services, and
then turn around and sell Internet service to their customers, often charging for the ‘‘privilege’’ of a fixed IP address.

4.4. IPv6 and routing

Initial policy toward IPv6 allocations was heavily influenced by the scaling problems associated with routing that were
experienced in the IPv4 space. This is one reason why the initial allocations were proposed to be so large. Large initial
allocations would allow ISPs and end-user organizations to announce one network prefix for a long period of time, rather
than expanding through acquisition of additional blocks that might (if they are non-contiguous) require additional route
announcements (see Fig. 2).


Fig. 2. Discounted ARIN IPv6 fees (10-year period).

On the other hand, the larger address size of the IPv6 space means that the routing tables will have to carry bigger
address prefixes. This will increase the demand on the memory of routers. And inherently associated with the vast number
of subnets is a potentially much larger universe of routes. This has given some experts concern. An IETF report noted,
‘‘Given that the IPv6 routing architecture is the same as the IPv4 architecture (with substantially larger address space), if/
when IPv6 becomes widely deployed, it is natural to predict that routing table growth for IPv6 will only exacerbate the
[routing table scaling problems].’’ (Meyer et al., 2007) Another sobering fact is that during the transition period from IPv4
to IPv6, many routers will have to support routing tables for both protocols. Until adoption increases, it is difficult to know
whether, or for how long, the larger initial allocations of IPv6 will outweigh the other factors. But in pure potential, the vast
size of the address space and the vast number of subnets and hosts that could be connected through it means that the
scaling problems of 1990–1993 could pale in comparison.
There are conflicting opinions about the routing problem within the technical community. Huston (2009) claims that
growth in the routing table is predictable and falls within the limits of Moore’s Law (i.e., increases in the processing
power of routers will compensate for growth in routing table size), therefore BGP can be extended for the intermediate
future, at least. On the other extreme, there are those who believe that BGP is inherently fragile and that an adequate
response to its scaling problems and security issues will require a new routing architecture that separates locators from
identifiers. (O’Dell, 1997; Meyer et al., 2007) In April of 2010, an Internet draft defining Locator/ID Separation Protocol
(LISP) was published and started to be used experimentally (Farinacci, Fuller, Meyer, & Lewis, 2010). It is also conceivable
that network address translation and IPv4-IPv6 translation will become stuck in place as a de facto new routing
architecture.

5. Future economic and institutional issues

As noted earlier, there is still some uncertainty about whether the migration to the new Internet standard will succeed
completely. The basic problem is that migrating to IPv6 imposes significant costs on organizations and yields no
corresponding immediate benefits. The migration will incur costs: training, weeding out compatibility problems, software
and hardware upgrades. Moreover, an IPv6-capable Internet service provider will have to keep running both protocol
stacks (both IPv4 and IPv6) for some time – many estimate that it will take decades to fully replace IPv4. After all these
expenditures the end result will be, at best, an Internet that functions exactly as it did before. Aside from the expanded
address space, IPv6 has few superior capabilities (better support for mobility is one of them).


For large ISPs with growing customer bases, the expanded address space does have some benefit, but for many
organizations whose current assignments are sufficient, there is no incentive to move whatsoever. Not only are there few
first-mover advantages to adopting IPv6, for many organizations the rational strategy is to wait for everyone else to go first,
and only change when one is forced to by the prospect of incompatibility with others.
Assuming that IPv6 does take hold, the movement from an environment of address-routing scarcity to one
of address abundance with continued constraints on routing promises to have transformational effects on the policies and
institutions for critical Internet resource management. Institutional economics suggests two distinct perspectives that can be
taken. One emphasizes the role of inertia and path dependency as an explanatory factor in institutional evolution
(North, 1990). The other emphasizes the way major discontinuities in supply and demand and in the incidence of costs and
benefits can produce radical qualitative shifts in institutional regimes (Mueller, 2002). In this case both pressures will play an
active role.
The large size of the IPv6 address space challenges the very basis of ‘‘needs assessment’’ as the basis for address
block allocations. As noted earlier, the IETF allocation standards already constitute a major departure from classical
needs-based methods. Users are assigned blocks more on the basis of their status and the number of ‘‘sites’’ they
have than on ‘‘demonstrated need.’’ Many holders of allocations will be given address blocks that vastly exceed their
immediate needs. Only when organizations ask for additional addresses will actual utilization levels be assessed.
Currently, a lot of the RIRs regulatory leverage comes from their status as being the only source for new address
allocations. In the IPv6 world, the initial allocations will be so large that RIRs may have less continuing leverage on user
organizations, because they will not need to come back asking for more addresses very often. IP address abundance may
make it more difficult for Internet registries to prevent those holding capacious allocations to reassign all or part
of their blocks for use by third parties. Portions of that address space might be leased out to those who want them but
consider the RIR process too costly or bureaucratic. As long as an Internet service provider can be found who will route
that address space, it would be difficult for address assignment authorities to keep track of, much less prevent, such
sub-delegations or leasings.
On the other hand, the RIRs could actually strengthen and rigidify their control over address allocation. The RIRs are
promoting a security technology known as Resource Public Key Infrastructure (RPKI). RPKI is a digital certificate scheme
that allows ISPs to authenticate whether someone using an address block was actually assigned that block by one of the
RIRs. It also allows the routing paths announced by ISPs to be authenticated as well. The RIRs are taking aggressive steps to
implement RPKI rapidly, and the Internet Architecture Board has announced that RPKI should be organized into a single,
hierarchical, global trust anchor, probably controlled by IANA. While this would add some security to what is now a loosely
organized routing system and prevent address hijacking, it would also provide the RIRs with direct control over ISP
operations and their use of address resources. The current regime does not provide this. A fully automated RPKI system
applied to both address assignments and routing could give the RIRs the ability to disable Internet service providers who
do not conform to their policies. This, along with the issue of who stands at the apex of the trust anchor hierarchy, poses a
host of new governance problems (Mueller & Kuerbis, 2008).
The shift to IPv6 also raises questions about the proper geographic scope of an address governance regime (i.e., should it
be global, national or regional?). The regional nature of RIRs is something of a historical artifact, driven more by political
concerns than by technical ones. There are tensions between the regional status quo, the technical imperatives of
governing the Internet (which lead toward global governance), and political imperatives (which sometimes lead to a
reassertion of national arrangements).
Address abundance undermines the rationale for localized needs assessments, and while the problem of route
aggregation remains, routing externalities respond to global interactions among ISPs and are based on the topology of the
network, not on geography per se. Many of the policies and problems associated with IPv4 scarcity also required globally
coordinated responses, such as shifting reclaimed address space from one region to another. So far, the RIRs have not been
able to establish coordinated policies to attack these problems. It is possible that various forms of arbitrage will emerge
and take advantage of the differences among the regional IRs’ policies.
Furthermore, the possibility of a new routing technology, emerging either from the IETF or from de facto adjustments to
the v4-v6 migration, could lead to major institutional changes. In the past 15 years, route aggregation has provided one of
the key rationales for the RIRs central management of address resources. Although few RIRs would openly acknowledge it,
the rationale for ‘‘needs assessment’’ has been undermined by the abundance of IPv6 resources and by the obvious
possibility of address block trading. RIR defenders have basically lost most of the arguments against market transfers as a
form of rationing address resources. The only credible reason they can provide for preventing market transfers and for
centralized coordination of allocations is the need to maintain hierarchical aggregation. What happens to the RIR regime if
a new routing architecture evolves and BGP and its peculiar problems go away?
In contrast to these technical pressures, it is evident that some nation-states, working through the International
Telecommunication Union (ITU), want to reassert a traditional nation-based governance model for Internet addresses. A
recent report commissioned by the ITU explicitly advocates a parallel system of Country Internet Registries (CIRs) managed
by the ITU as a competitive alternative to the existing RIR regime (Ramadass, 2009). Many ITU members prefer a CIR
arrangement not because of any real or imagined benefits of competition, but because they are concerned about resource
depletion and political control. Developing countries fear a replay of the address land rush that characterized the early days
of IPv4; reserving a substantial block of IPv6 address to each national government not only secures their access to the


resource but also makes it easier for them to exert policy control over the Internet industry. Critics of this proposal fear that
national governments would abuse that power to censor, over-regulate or even partition the Internet. They also believe
that aggregation requires a globally coordinated approach and do not trust the national governments and ITU to follow the
appropriate policies.
A number of critical values are at stake in IP address allocation. The future of global compatibility is implicated by the
apparent need to migrate to a new Internet standard that is not backwards-compatible. It is not known exactly how liberal
or conservative the initial allocation of the new address resources should be, but the decisions made now will have a major
impact on the costs and accessibility of Internet resources decades from now. The future of the end to end principle is
implicated by the numerous gateways, network address translators and kludges that might be required to extend the life of
the IPv4 space or to maintain connectivity between the IPv4 and IPv6 Internets. There are also weighty geopolitical and
political economy issues involved in the transition. The IPv6 address-routing space can be compared to the opening of a
vast new continent. It is inevitable that political and institutional authorities would compete over the control of that
resource space. The scalability of the Internet – its continued growth – cannot be taken for granted unless these problems
are solved.

References

ARIN. (2009, September) Number resource policy manual (Version 2009.4). Herndon, VA: American Registry for Internet Numbers. Retrieved from
/https://www.arin.net/policy/nrpm.htmlS.
Cerf, V. (1990, August). IAB recommended policy on distributing Internet identiﬁer assignment. (RFC 1174), Internet Engineering Task Force. Retrieved from
/http://www.rfc-editor.org/rfc/rfc1174.txtS.
Cowie, J. (2009). The adventurous parts of the Internet. Retrieved from Renesys blog /http://www.renesys.com/blog/2009/01/the-adventurous-parts-of-th
e-i.shtmlS.
Dell, P. (2010). Two economic perspectives on the IPv6 transition. Info, 12, 4.
DeNardis, L. (2009). Protocol politics: The globalization of Internet governance. Cambridge, MA: MIT Press.
Edelman, B. (2009). Running out of numbers: Scarcity of IP addresses and what to do about it. In S. Das, M. Ostrovsky, D. Pennock, & B. Szymanski (Eds.),
Auctions, market mechanisms and their applications—First international ICST conference, AMMA 2009, Boston, MA, USA, May 8–9, 2009, Revised selected
papers (pp. 95–106). Berlin, Germany: Springer-Verlag.
Elmore, H., Camp, L. J., & Stephens, B. (2008). Diffusion and adoption of IPv6 in the ARIN REGION. Paper presented at the 2008 Workshop on the Economics of
Information Security, June 25–28, Dartmouth College, Hanover, New Hampshire.
Farinacci, D., Fuller, V., Meyer, D., & Lewis, D. (2010, April 25). Locator/ID separation protocol (LISP). (Internet Draft). Internet Engineering Task Force.
Retrieved from /http://data-tracker.ietf-lisp/S.
Fuller, V., Li, T., Yu, J., & Varadhan, K. (1993, September). Classless inter-domain routing (CIDR): An address assignment and aggregation strategy. (RFC 1519),
Internet Engineering Task Force. Retrieved from /http://www.faqs.org/rfcs/rfc1519.htmlS.
Hain, T. (2005). A pragmatic report on IPv4 address space consumption. The Internet Protocol Journal, 8(3), 2–9.
Hofmann, J. (2009). Before the sky falls down: A constitutional dialogue over the depletion of Internet addresses. Paper presented at the Fourth annual
symposium of the Global Internet Governance Academic Network (GigaNet), Sharm-el-Sheik, Egypt, 14 November 2009.
Hubbard, K., Kosters, M., Conrad, D., Karrenberg, D., & Postel, J. (1996, November). Internet registry IP allocation guidelines. (RFC 2050), Internet Engineering
Task Force. Retrieved from /http://www.faqs.org/rfcs/rfc2050.htmlS.
Huitema, C. (1994, November). The H ratio for address assignment efﬁciency. (RFC 1715), Internet Engineering Task Force. Retrieved from /http://tools.ietf.
org/html/rfc1715S.
Huston, G. (2001). Analyzing the Internet BGP routing table. The Internet Protocol Journal, 4(1), 2–15.
Huston, G. (2009). BGP in 2008. Retrieved from /http://www.potaroo.net/ispcol/2009-03/bgp2008.htmlS.
Internet Architecture Board. (2001, September). IAB/IESG recommendations on IPv6 address allocations to sites. (RFC 3177), Internet Engineering Task Force.
Retrieved from /http://www.ietf.org/rfc/rfc3177.txtS.
Lehr, W., Vest, T., & Lear, E. (2008). Running on empty: The challenge of managing Internet addresses. Paper presented at the 36th annual
telecommunications policy research conference, September 27, 2008, George Mason University, Arlington, VA, USA. Retrieved from /http://cfp.
mit.edu/publications/CFP_Papers/Lehr%20Lear%20Vest%20TPRC08%20Internet%20Address%20Running%20on%20Empty.pdfS.
Meng, X., Xu, Z., Zhang, B., Huston, G., Lu, S., & Zhang, L. (2005). IPv4 address allocation and the BGP routing table evolution. ACM SIGCOMM Computer
Communication Review, 35(1), 71–80.
Meyer, D., Zhang, L., & Fall, K. (2007, September). Report from the IAB workshop on routing and addressing. (RFC 4984), Internet Engineering Task Force.
Retrieved from /http://www.ietf.org/rfc/rfc4984.txtS.
Millet, S., & Huston, G. (2005, August). Proposal to amend APNIC IPv6 assignment and utilisation requirement policy. (Proposal No. Prop-031-v001). Retrieved
from /http://mailman.apnic.net/mailing-lists/sig-policy/archive/2005/09/msg00013.htmlS.
Mueller, M. (2002). Ruling the root: Internet governance and the taming of cyberspace. Cambridge, MA: MIT Press.
Mueller, M. (2008). Scarcity in IP addresses: IPv4 address transfer markets and the regional Internet address registries. Internet Governance Project. Retrieved
from /http://internetgovernance.org/pdf/IPAddress_TransferMarkets.pdfS.
Mueller, M., & Kuerbis, B. (2008). Regional address registries, governance and Internet freedom. Internet Governance Project. Retrieved from /http://
internetgovernance.org/pdf/RIRs-IGP-hyderabad.pdfS.
Narten, T. (2005, June). Issues related to the management of IPv6 address space. IETF Internet Draft. Retrieved from /http://ietfreport.isoc.org/all-ids/
draft-narten-iana-rir-ipv6-considerations-00.txtS.
North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge, UK: Cambridge University Press.
O’Dell, M. (1997). GSE—An alternate addressing architecture for IPv6, Internet Draft. Retrieved from /http://ietfreport.isoc.org/all-ids/draft-ietf-ipngwg-g
seaddr-00.txtS.
Ostrom, E. (2005). Understanding institutional diversity. Princeton, NJ: Princeton University Press.
Perset, K. (2007). Internet address space: Economic considerations in the management of IPv4 and in the deployment of IPv6. (Report # DSTI/ICCP(2007)20/
FINAL). Paris, France: Organization for Economic Cooperation and Development.
Ramadass, S. (2009). A study on the IPv6 address allocation and distribution methods. National Advanced Center for IPv6 Center of Excellence, Malaysia.
Rekhter, Y., & Li, T. (1995, March). A Border Gateway Protocol 4 (BGP-4). (RFC 1771), Internet Engineering Task Force. Retrieved from /https://www.arin.
net/knowledge/rfc/rfc1771.txtS.
Rekhter, Y., & Li, T. (1996, October). Implications of various address allocation policies for Internet routing. (RFC 2008), Internet Engineering Task Force.
Retrieved from /http://www.faqs.org/rfcs/rfc2008.htmlS.
Rekhter, Y., Li, T., & Hares, S. (2006, January). A Border Gateway Protocol 4 (BGP-4). (RFC 4271), Internet Engineering Task Force. Retrieved from /http://
www.ietf.org/rfc/rfc4271S.


Rekhter, Y., Resnick, P., & Bellovin, S. (1996). Financial incentives for route aggregation and efﬁcient utilization in the Internet. In B. Kahin, & J. H. Keller
(Eds.), Coordinating the Internet (pp. 273–287). Cambridge, MA: MIT Press.
Van de Velde, G., Popoviciu, C., Chown, T., Bonness, O., & Hahn, C. (2008, December). IPv6 unicast address assignment considerations. (RFC 5375), Internet
Engineering Task Force. Retrieved from /http://tools.ietf.org/html/rfc5375S.
Wang, Z., & Crowcroft, J. (1992, May). A two-tier address structure for the Internet: A solution to the problem of address space exhaustion. (RFC 1335), Internet
Engineering Task Force. Retrieved from /http://tools.ietf.org/html/rfc1335S.

Critical resource aninstitutionaleconomicsofthe internet26

Recommended

Recommended

More Related Content

Similar to Critical resource aninstitutionaleconomicsofthe internet26

Similar to Critical resource aninstitutionaleconomicsofthe internet26 (20)

Recently uploaded

Recently uploaded (20)

Critical resource aninstitutionaleconomicsofthe internet26