There’s about to be an outcry over the possibility that U.S. Internet service providers might start charging by the byte  — so-called “pay as you go” Internet service. Before the hard-headed economic realists duke it out with the participatory democracy free-speech propeller heads (I’m in both camps, so I say all that with love), here’s a modest proposal:
Sometimes we think it’s natural that people should pay based on how much of something they use. The exceptions to that are interesting: while we’re okay with the principle when it comes to food (perhaps because people all generally use the same amount, within a narrow range), many are not okay with it when it comes to medical care. We’re mostly okay with it for electricity and water, even though consumption can vary widely and both goods are really required infrastructure for life in a modern society.
We haven’t really decided how we feel about it for Internet usage. It has a certain appeal: why should your neighbor stream online videos all day, slowing down everyone and transferring orders of magnitude more data over shared pipes than you do, yet pay the same amount per month?
One counterargument is that you and your neighbor are rate-limited and can only transfer a certain number of bytes per second at a maximum anyway, so if you consider the monthly charge to be paying for that maximum, it’s up to each user whether they want to use the full capacity each month or not.
That argument’s not very convincing, though, because the system isn’t physically capable of supporting everyone at a maximum simultaneously anyway. It’s a theoretical capacity only; in practice, the pipes are a shared resource, and the ISPs deal with that reality every day. People who consistently use more than their fair share of that resource should face a disincentive.
A better argument might be: bidirectional Internet access is so important to participation in society that we should find ways to subsidize it. A world where the rich have access to all the online video they want while the poor have to make do with ASCII art  is a losing proposition for everyone.
But then how to make sure there’s disincentive to over-consume?
Charging by the square root of the number of bytes transferred per unit of time means that each user’s costs rise with usage, but with a much flatter curve than simply charging a straight rate per byte. You pay more, and if you use orders of magnitude more you pay noticeably more — but you don’t pay orders of magnitude more. The teenager who wants to upload her own movie will be able to do so, but doing things like that often enough will merit some consideration from the user, which is what we want.
(Obviously it doesn’t have to be exactly the square root function; I just mean some well-defined function that flattens the curve and can be intuitively “felt” by users given enough experience. Square root’s probably a good one, I’d guess, but I haven’t actually worked through the data. What do I look like, some kind of hard-headed economic realist?)