Saturday, April 15, 2006

An Interesting Analysis of Violating the Do Not Call Registry

In this news item, which lacks the necessary analysis to put it into perspective, you will read that DirecTV has been fined millions of dollars for egregiuosly violating the federal Do Not Call Registry. The FTC received 1.4M complaints about unsolicited telemarketing calls from DirecTV.

The real value of this article is in the comments of readers under the article. In this, they observe that the penalty amounts to $3.80 per call. They raise the possibility that DirecTV intentionally violated the DNCR law, knowing they would be fined but choosing to see the fine as a marketing expense.

This reminds me of Ford's decision to not only continue to make the Pinto in light of known issues with rear-end collision explosions but to choose to not recall the car with a $5 fix. Ford calculated the risk of deaths and successful wrongful death suits versus the cost of the entire recall. Ford willingly chose deaths over a recall. In Fight Club, Edward Norton's character dealt with this very same calculus.

Certainly, DirecTV's violation is nowhere near the moral gravity as Ford's decision but the idea is the same: make an informed risk-based decision to violate a law or ethic in the interest of making money.

One commenter made a good point: The FTC should levy a flat fee per complaint that must be paid to the Feds in the event that the FTC determines violations occurred. A fee of $200 per violation would have resulted in a penalty of $280 million.

Unless the penalty of violation exceeds the value derived from violating the law, the law has no deterrent effect.

The FTC's willingness to negotiate a settlement with DirecTV belies an assumption of I have commented on before: many in government believe merely making a law is sufficient to deter unwanted behavior. The law is incapable of stopping unwanted behavior simply on the basis that a law exists. The law must be enforced so that those who break the law are stopped or such that the penalty of the law creates a disincentive for violation.