An Economic Analysis of Liability of Hosting Services: Uncertainty and Incentives Online. Bruges European Economic Research Papers 37/2017

Hornik, Joanna and Villa llera, Carmen (2017) An Economic Analysis of Liability of Hosting Services: Uncertainty and Incentives Online. Bruges European Economic Research Papers 37/2017. [Policy Paper]

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Abstract

In this paper we study the uncertainty in the liability provisions under the E-Commerce Directive from an economic perspective . Through the combination of economics of cybersecurity and economic theories of deterrence and liability we analyse how the uncertainty in Articles 12-15 of the E-Commerce Directive can affect the incentives that Internet service providers have as regards what level of involvement to have with data uploaded by users. By looking at the costs and benefits of investment in security, we show how the existence of uncertainty in the law can lead to a suboptimal level of investment. Subsequently, we explore the consequences of changing the current liability provisions towards either strict liability or no liability at all. We show how rationally speaking, excessively strict liability could lead to surveillance of all online content, posing a threat to freedom of expression and exchange of information. On the other hand no liability would transfer the responsibility for a safe online space away from hosting services towards public authorities and civil society groups. The paper intends to add economic analysis to the legal debate in pursue for more clarity regarding the interpretation of current rules as well as a better alignment of incentives of hosting service providers and user preferences so as to create a safer and fairer online environment.

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