CAN WIRETAPS REMAIN COST-EFFECTIVE? by Robin Hanson SUMMARY: Compared to an average monthly phone bill of seventy dollars, the option to wiretap the average phone line is probably worth less than twelve cents a month to police and spy agencies. Claims that this option is worth over a dollar a month ignore the basic economics of law enforcement. Thus recently proposed government policies to preserve wiretap abilities in the face of technological change must raise phone costs by less than one part in seven hundred to be cost-effective. Why not let a market decide if wiretaps make sense? BACKGROUND Until now, telephones have happened to allow the existence of "wiretaps", cheap detectors which can pick up conversations on a phone line without the consent of either party to the conversation. And since 1968, U.S. police have been allowed to request such wiretaps from judges, and must compensate phone companies for expenses to assist a tap. Since then, law enforcement agencies have come to rely on this capability to aid in criminal investigations. However, wiretaps have become more difficult as phone companies have switched to digital technologies. And powerful new encryption technologies threaten to make truly private communication possible; a small chip in each phone could soon make it virtually impossible to overhear a conversation without a physical microphone at either end. So the U.S. government has begun to actively respond to these threats to police wiretap abilities. Regarding digital phone issues, a "FBI Digital Telephone Bill" was circulated early in 1992 , proposing to require all communication services to support easy wiretaps, now without compensation from the police. Each tapped conversation would have to be followed smoothly as the parties used call-forwarding or moved around with cellular phones. The data for that conversation would have to be separated out from other conversations, translated to a "form representing the content of the communication", and sent without detection or degradation to a remote government monitoring facility, to be received as quickly as the parties to the conversation hear themselves talk. Congress has yet to pass this bill. Regarding encryption issues, the White House announced on April 16, 1993 that 1) they had developed and begun manufacturing a special "wiretap" (or "Clipper") chip to be placed in future phones, instead of the total privacy chips which have been under private development, 2) they plan to require this chip in most phones the government buys, and 3) they will request all manufacturers of encrypted communications hardware to use this wiretap chip. The same day, ATT announced it would use these chips "in all its secure telephone products". The plan seems to be to, at the very least, create a defacto standard for encryption chips, so that alternatives become prohibitively expensive for ordinary phone users, and to intimidate through the threat of further legislation. Such legislation would be required to stop privacy fans and dedicated criminals, who might be willing to pay much more to use an alternative total privacy standard. Both the specific wiretap chip design and the general algorithm are secret. Each chip would be created under strict government supervision, where it would be given a fixed indentifier and encryption key . At some unspecified frequency during each conversation, the chip would broadcast its identifier and other info in a special "law enforcement field". Law enforcement officers with a court order could then obtain the key corresponding to this indentifier from certain unspecified agencies, and could thereby listen in on any future or previously recorded conversations on that phone. To date, most concerns voiced about the wiretap chip have been about its security. Encryption algorithms are usually published, to allow the absence of public demonstrations of how to break the code to testify to the strength of that code. And it is not clear what government agency could be trusted with the keys. Many suspect the government will not limit its access in the way it has claimed; the track records of previous administrations , and of foreign governments , do not inspire confidence on this point. This paper, however, will neglect these concerns, and ask instead whether this new wiretap chip, and other policies to preserve phone wiretaps, are cost-effective tools for police investigation. That is, which is a cheaper way for society to investigate crime: force phone communications to support wiretaps, or give police agencies more money to investigate crimes as they see fit? Or to put it another way, would police agencies still be willing to pay for each wiretap, if each wiretapping agency were charged its share of the full cost, to phone users, of forcing phones to support wiretaps? A recent U.S. General Accounting Office report on the FBI bill stated : "[N]either the FBI nor the telecommunications industry has systematically identified the alternatives, or evaluated their costs, benefits, or feasibility." While this paper will not change this sad fact, it does aspire to improve on the current confusion. To begin to answer the above questions, we might compare the current benefits wiretaps provide to law enforcement agencies with projected costs of implementing the new wiretap chip and other wiretap policies. WIRETAP BENEFITS 1990 is the latest year for which wiretap statistics are widely available , though wiretap activity has been rather steady in recent years. According to the Office of U.S. Courts, 872 wiretap installations were requested by local, state, and federal police in 1990, and no requests were denied. 2057 arrests resulted from wiretaps started the same year, 1486 arrests came from wiretaps in the previous ten years, and 55% of arrests led to convictions. About 40% of wiretaps were requested by federal authorities, while several states, including California and Illinois, still do not allow wiretaps. About 60% of taps were regarding drug offenses, and 14% for gambling offenses. Wiretaps are most useful for investigating "victimless" crimes, since victims will often give police permission to record their calls. Each wiretap installation heard an average of 1487 calls, 22% of them incriminating, among 131 people, and cost an average of $45,125, mostly for labor (extrapolating from the 91% of installations reporting costs). $1.6 million was also spent following up on wiretaps from previous years. Thus a total of about $41 million was spent on wiretaps, to obtain about 4000 arrests, at about $10,000 per arrest, or four times as much as the $2500 per arrest figure one gets by dividing the $28 billion spent by all police nationally by the total 11 million non-traffic arrests . Thus wiretaps are a relatively expensive form of investigations. 76% of the wiretaps were for phone lines (vs pagers, email, etc.), and are the focus of this paper. The $31 million per year spent on phone taps represents only one thousandth of the total police expenditures, and if we divide this by the 138 million phone "access" lines in the country , we get about 23 cents spent per year per phone line, or about two cents a month. Since 1978, our foreign intelligence agencies have also been authorized to tap international phone calls. No statistics are published on these taps, so let us assume a similar number of "spy" wiretaps are done, giving a total of ~$60 million annually, or four cents per month spent on wiretaps per phone line. Of course the amount police spend on wiretaps is not the same as the benefits of wiretaps. How can we estimate benefits? Dorothy Denning, an advocate of both the FBI bill and the wiretap chip, claims that "the economic benefits [of wiretaps] alone are estimated to be billions of dollars per year" , and then refers to amounts fined, recovered, and "$2 billion in prevented potential economic loss" by the FBI from 1985 to 1991. Denning further relays fascinating FBI claims that through wiretaps "the hierarchy of organized crime has been neutralized or destabilized", and that "the war on drugs ... would be substantially ... lost" without them. Two billion dollars per year of wiretap benefit would translate to a little over a dollar a month per phone line. Denning, however, offers no support for her claims, and appears to be relaying internal FBI figures, which the FBI itself has neither revealed nor explained to the public. And the FBI is hardly a neutral party on this subject. Estimating the benefits of police investigations is not a simple as it might seem, however, and certainly requires more than adding up amounts fined or recovered. Long and well-established results in the economics of law enforcement  tell us to reject the notion that we should be willing to spend up to one dollar on police, in order to collect another dollar in fines or to prevent another dollar of theft. So, for example, we rightly reject IRS pleas for increased budget based solely on estimates of how many more dollars can be collected in taxes for each dollar spent by the IRS. In fact, a main reason given for using public police to investigate crime, instead of private bounty hunters, is to avoid such police overspending. In general, we deter a given class of criminals through a combination of some perceived probability of being caught and convicted, and some expected punishment level if convicted. And some crime is directly prevented, rather than deterred, through some level of police monitoring. The optimum police budget is a complex tradeoff between social costs due to the crimes themselves, the punishment exacted, and police expenses. How then can we estimate wiretap benefits? Let us assume that about the right total amount is being spent on police, and that police have about the right incentives, to spend their budget to monitor where it would help the most, and to get as many as possible of the right kinds of convictions. (If police budgets are too low, then the answer is to increase them, rather than trying to crudely subsidize any one of their expenses.) In this case the social benefit of being able to wiretap is no more than about the additional amount police would be willing to pay, beyond what they now pay, to undertake the same wiretaps (assuming this remains a small fraction of total police budgets). The benefit of wiretaps is actually less than this value, because were wiretaps to become more expensive, we might prefer to get the same criminal deterrence by instead raising punishment and lowering the probability of conviction, or perhaps we might accept a lower deterrence level, or even decriminalize certain activities. Police monitoring might be similarly adjusted. How much police would be willing to pay for each wiretap would depend of course on how what alternatives are available. If unable to wiretap a particular suspect's phone line, police might instead use hidden microphones, informants, grant immunity to related suspects, or investigate a suspect in other ways. The law requires that police requesting a wiretap must convince a judge that other approaches "reasonably appear to be unlikely to succeed if tried or to be too dangerous". But in practice judges don't often question boilerplate claims to this effect in police requests , and investigations often continue even after a wiretap has failed to aid an investigation. Experienced investigators advise wiretaps as a last resort, but mainly because wiretaps are so expensive. More importantly, police can also choose to focus on similar suspects who are more easily investigated without wiretaps. Most police cases are near the borderline where it is not clear that they are worth pursuing, and will be simply dropped should a more pressing case suddenly arise. Many cases reach the point where a wiretap might help, but are dropped because a wiretap seems too costly. And most cases now using wiretaps would probably be abandoned if wiretaps became dramatically more expensive. No doubt a few wiretaps are so valuable that it would have cost ten times as much to obtain similar results through other means. But on average, it is hard to imagine that police would be willing to pay more than a few times what they now pay for each wiretap. If we assume that police would on average be willing to pay twice as much for each tap, then the social benefit of phone wiretaps is about equal to the current spending level of four cents a month per phone line. If we assume that police would on average be willing to pay four times as much per wiretap, the option to wiretap the average phone would be worth twelve cents a month. A better estimate of wiretap values might come from randomly asking recent wiretap requestors whether they would have still requested that wiretap had they expected it to take twice as much labor to get the results they had expected, or three times as much, etc. The FBI will not allow such a survey by ordinary citizens, but perhaps some state police would. But until such research is done, the twelve cent figure seems a reasonably generous estimate, and the four cent figure may be closer to reality, Of course the value of the option to tap any particular phone line presumably varies a great deal from the average value. But unless the police can somehow pay only for the option to wiretap particular phone lines of its choosing, it is the average value that matters for a cost/benefit analysis. WIRETAP COSTS Let us for the moment optimistically assume that the U.S. government encryption scheme used in the wiretap chip is as secure as whatever private enterprise would have offered instead, protecting our conversations from the spying ears of neighbors, corporations, and governments, both foreign and domestic. Even so, the use of this chip, and of other policies to support wiretaps, would create many additional costs to build and maintain our communication system. Some phone companies must have perceived a non-trivial cost in continuing to support wiretaps while moving to digital phone transmissions, even when compared to the widely recognized value of staying on the good side of the police. Otherwise the police would not have complained of "instances in which court orders authorizing the interception of communications have not been fulfilled because of technical limitations within particular telecommunications networks" . The wiretap chip requires extra law enforcement fields to be added to phone transmissions, increasing traffic by some unknown percentage. A special secure process must be used to add encryption keys to chips, while securely distributing these keys to special agencies, which must be funded and monitored. The chips themselves are manufactured through a special process so that the chip becomes nearly impossible to take apart, and the pool of those who can compete to design better implementations is severely limited. Private encryption systems not supporting wiretaps would require none of these extra costs. Perhaps most important, government decree would at least partially replace private marketplace evolution of standards for how voice is to be represented, encrypted, and exchanged in our future phones. It is widely believed that governments are less efficient than private enterprise in procuring products and standards, though they may perhaps perform a useful brokering role when we choose between competing private standards. How much less efficient is a matter of debate, some say they pay twice as much, while others might say they pay only 10% more. This type of wiretap support also raises costs by preventing full use of a global market for telephone systems. It pushes certain domestic phone standards, which foreign countries may not adopt, and requires the use of encryption methods known only to our government, which foreign countries are quite unlikely to adopt. In 1990, 53 U.S. phone companies had total revenues of $117.7 billion for domestic calls, $4.4 billion for overseas calls, and $4.5 billion for cellular calls , for a total cost of $126.6 billion dollars to run the phone system, and an average monthly phone bill of $76.45 per line. If we generously assume that police and spies would on average be willing to pay four times as much as the ~$60 million they now spent on wiretaps annually, we find that wiretaps are not cost effective if we must raise phone costs by as much as one part in 700 to preserve wiretap abilities in the face of technological change. The twelve cents per line wiretap option value must be compared with an average seventy dollar monthly phone bill. (If we assume that police would only pay twice as much on average, then this limit falls to one part in 2000!) Dorothy Denning relays FBI claims that $300 million is the maximum cumulative development cost "for a switch-based software solution" so that phone companies can continue to support wiretaps . Denning does not, however, say how long this solution would be good for, nor what the software maintenance and extra operating costs would be. And again this is a figure which the FBI itself has neither revealed nor explained to the public. If we use a standard estimate that software maintenance typically costs twice as much as development , and accept this FBI estimate, then this extra software cost would be by itself five times the above generous estimate of annual wiretap benefits. The current government contractor claims it will offer the wiretap chips for about $26 each in lots of 10,000 , over twice the $10 each a competing private developer claims it would charge  for a chip with comparable functionality, minus wiretap support. And the wiretap chip price probably doesn't reflect the full cost of government funded NSA research to develop it. If only one phone (or answering machine) is replaced per phone line every five years, the extra cost for these chips alone comes out to over 27 cents extra a month per line, or by itself more than two times a twelve cent estimated wiretap option value. Of course most phones wouldn't have encryption chips for a while, but the wiretap benefit is per phone, so this argument still applies. COMPARING BENEFITS AND COSTS Given the dramatic difference between the total cost of running the phone system and an estimated social value of wiretaps, we can justify only the slightest modification of the phone system to accommodate wiretaps. When the only modification required was to allow investigators in to attach clips to phone wires, wiretap support may have been reasonable. But when considering more substantial modification, the burden of proof is clearly on those proposing such modification to show how the costs would really be less than the benefits. This is especially true if we consider the costs neglected above, of invasions of the privacy of innocents, and the risk that future administrations will not act in good faith . If consensus cannot be obtained on the relative costs and benefits of wiretaps, we might do better to focus on structuring incentives so that people will want to make the right choices, whatever those might be. Regarding phone company support for wiretaps, it seems clear that if wiretaps are in fact cost-effective, there must be some price per wiretap so that police would be willing to pay for wiretaps, and phone companies would be willing to support them. As long as the current law requiring police to pay phone company "expenses" is interpreted liberally enough, the market should provide wiretaps, if they are valuable. Monopoly market power of phone companies, or of police, might be an issue, but if we must legislate to deal with monopoly here, why not do so the same way we deal with monopoly elsewhere, such as through price regulation? Legislating the price to be zero, however, as the FBI bill seems to propose, seems hard to justify. And having each police agency pay for wiretaps, rather than all phone companies, seems fairer to states, such as California and Illinois, which do not allow wiretaps. Regarding encryption chips, recall that without legislation outlawing private encryption, serious criminals would not be affected. In this case, it does not seem unreasonable to allow phone companies to offer discounts to their customers who buy phones supporting wiretaps, and thereby help that phone company sell wiretaps to police. Each phone user could then decide if this discount was worth buying a more expensive phone chip, and risking possible unlawful invasions of their privacy. Adverse selection, however, might make privacy lovers pay more than they would in an ideal world. If outlawing private encryption is seriously considered, then we might do better to instead just declare an extra punishment for crimes committed with the aid of strong encryption, similar to current extra punishments for using a gun, crossing state lines, or conspiring with several other people. As in these other situations, a higher punishment compensates for lower probabilities of convicting such crimes, and for higher enforcement costs, while still allowing individual tradeoffs regarding wiretap support. If, as seems quite possible, the stringent cost requirements described here for preserving wiretap abilities cannot be met, then we should accept that history has passed the economical wiretap by. Police functioned before 1968, and would function again after wiretaps.  ftp: ftp.eff.org /pub/EFF/legislation/new-fbi-wiretap-bill /pub/EFF/legal-issues/eff-fbi-analysis  Clipper Chip Technology, ftp: csrc.ncsl.nist.gov /pub/nistnews/clip.txt  Alexander Charns, Cloak and Gavel, FBI Wiretaps, Bugs, Informers, and the Supreme Court, Univ. Ill. Press, Chicago, 1992.  Headrick, The Invisible Weapon, Oxford Univ. Press, 1991.  Report on Applications for Orders Authorizing or Approving the Interception of Wire, Oral, or Electronic Communications, 1990, Administrative Office of U.S. Courts, Washington, DC 20544.  Statistical Abstract of the United States, 1992.  Dorothy Denning, "To Tap Or Not To Tap", Comm. of the ACM, March 1993.  Richard Posner, Economic Analysis of Law, 4th Ed., 1992, Chapter 22.  Report of the National Commission for the Review of Federal and State Laws Relating to Wiretapping and Electronic Surveillance, Washington, 1976.  Barry Boehm, Software Engineering Economics, Prentice Hall, 1981.  conversation with Steven Bryen, representative of Secure Communications Technology, 301-588-2200, April 25, 1993.
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