Sep 23, 2015

Volkswagen, Free Software and Economic Incentives

The automotive industry has been in the spotlight after a massive scandal at Volkswagen, using code hidden in the engine management software to cheat emissions tests.

Volkswagen programmed its car engine computers to detect the EPA's emission tests, and run dirty the rest of the time.

In real driving, the cars exceeded emissions standards by a factor of up to 35.

It has long been known that such software is spying on the habits of the driver and this data is extracted from the car when it is serviced and uploaded to the car company.

VW being caught is the exception and this is hardly surprising; proprietary software is often malware.

In fact, experts generally agree that there is no means other than software freedom to counter the might of corporations like Volkswagen and their potential to misuse that power, as demonstrated in the emissions testing scandal.

Using free software would not have stopped Volkswagen from programming it this way, but would have made it harder to conceal.

A simple application of economic thinking also suggests that there is nothing surprising here.
Companies respond to economic incentives and possibly, being made by humans, they can make systematic misjudgments. The benefit from cheating on some proprietary software was high, the likelihood of being caught low, of being caught in the near future possibly very low; and even though in the case of being caught the economic and reputational costs would have been very high, they easily can appear low today being somewhat hidden in a far possible future.

High guaranteed benefit today vs some probability of a cost in a discounted future. And today you need to pay your rent, your son college etc.

A rational agent would have probably put more weight into future costs, after all it is likely that the VW scandal turns out having a negative payoff for the company overall. But companies are made by humans; and regulators, those who are supposedly responsible for designing the incentive schemes of the entire market, are humans as well.

The way incentives are shaped also matters. And in this case incentives were designed so that there was a clear immediate benefit from cheating and an unclear future cost.

Let me make a comparison.

The use of proprietary software corresponds to not being able to know the recipe or the ingredients of the food you buy. Cheating or adding malware to proprietary software is like adding secret, possibly unwanted or addictive, ingredients to your food. If you do not have the right to know the ingredients (nor the right to analyze – reverse engineering), then it becomes extremely difficult to control what companies do. And the consumer will never have enough information to make the right choice (which also implies we depart from a fairly competitive market). In this situation, you are basically pushing a company towards adding secret ingredients to your food, or malware to the software you run.

There are a number of issues here related to the use of free software, and I don’t want to discuss them all here; also because they have been extensively discussed by others since 1984. However, I think it is worthy stressing a couple of points that are particularly related to the VW scandal.

First, if car companies such as VW were forced to use free software, then the government would be able to run, inspect, share and modify the software. This would allow the government to truly enforce and control emissions, after all they could easily distribute their approved version of the software for testing emissions.

Second, if car companies such as VW were forced to use free software, they would probably not need to spend much money in developing such software for their cars since there would be many free versions of that software freely circulating and easy to modify for their particular needs. Possibly they would not need to develop the software at all, maybe they could just be required to install the government approved software. Lower costs for companies, less monopoly power, less distorted incentives, higher security, more information, more fair competition.

A similar reasoning applies to the risk of hackers remotely accessing our cars. And I believe this applies to many other cases.

The first part of this article was made by using sentences from the following sources:

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