Deterring Bad Behavior on Digital Platforms

This paper is about the regulation of bad behavior by participants on digital platforms. It shows that these platforms have private incentives to limit this bad behavior and, in fact, have rules, monitoring, and enforcement systems to do so. However, these private incentives may not provide motivation to limit harmful behavior enough. That may require the government to enhance public regulation of the perpetrators and better align the platform’s private incentives to engage in regulation with public incentives to do so. The paper uses the economic theory of the regulation of negative externalities to examine these issues and provide general guidance for devising interventions. It identifies issues that policymakers should consider in determining the optimal regulation of bad behavior on digital and applies these to current discussions over the regulation of speech, privacy, and copyright. Finally, it shows that these negative externalities, and governance systems to address them, also raise important issues for antitrust policy