When e-mail becomes junk mail: The welfare implications of the advancement of communications technology

This paper examines the negative externality imposed by a direct marketing firm on the consumers who must spend time reading and processing the advertising they receive from that firm. A model is developed to show that with low communication costs, a firm would send out more unsolicited advertising messages than would be desired by consumers and a social welfaremaximizing planner. The optimal Pigovian tax to eliminate the problem of excessive message sending is then derived. The extent of the problem in a number of media, including direct mail, telemarketing, and the Internet, is briefly examined.