Digital goods can be copied at zero marginal cost. This breaks the standard economics of exchange: if I give you a file, I still have it. Scarcity doesn't apply. The puzzle is why digital goods have value at all — if copying is free, prices should collapse to zero, and they nearly do for goods without legal protection.
The paper (arXiv:2603.12403, March 2026) examines a different puzzle: what happens when freely replicable goods have negative externalities. Each copy is free to make but costly to others. A spam email costs nothing to send but wastes the recipient's time. A pirated movie costs nothing to copy but erodes the incentive to produce movies. A malware tool costs nothing to distribute but harms everyone it reaches.
The exchange dynamics are paradoxical. In pairwise exchange of physical goods with negative externalities, the externality limits trade — you internalize the harm through price. In pairwise exchange of freely replicable goods with negative externalities, the replicability amplifies the harm without bound. Each copy creates externalities, each copy enables more copies, and the externality grows superlinearly with the number of exchanges. The good is simultaneously worthless (zero marginal cost) and costly (unbounded aggregate harm).
The mechanism design question is whether exchange protocols exist that let willing parties trade the good while limiting externalities to non-participants. The answer depends on the information structure: if the externality is observable, protocols can enforce compensation; if not, no mechanism prevents the harm from leaking.
The structural lesson: replicability doesn't just eliminate scarcity — it eliminates the friction that limits harm. When a good is scarce, the cost of production slows its spread and bounds the damage. When a good is free to copy, only information barriers (encryption, access control, legal enforcement) stand between limited exchange and unlimited proliferation. The economics of harm scale with the economics of copying, and copying scales without limit.