TRUST AND VIRTUAL DISTRICTS: EVIDENCE FROM THE MILAN INTERNET EXCHANGE

Emanuele Giovannetti, Karsten Neuhoff () and Giancarlo Spagnolo

Metroeconomica, 2007, vol. 58, issue 3, 436-456

Abstract: Peering decisions between Internet Service Providers (ISPs) contain substantial non‐measurable aspects requiring trust and informal cooperation among peering partners. We study whether virtual districts are observed between Internet peers. Our empirical analysis of the bilateral peering decisions at the Milan Internet Exchange confirms that these decisions are significantly influenced by: travel time either between ISPs' headquarters or towards the exchange—a proxy for distance, bandwidth—a proxy for size, and European connectivity. Proximity still plays a role in reducing the transaction costs of monitoring and punishing deviant behavior within an industry where trust is essential for Internet universal connectivity.

Date: 2007
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