what are the advantages and disadvantages of network layer encryption?
Advantage: Traffic can't be observed as "clear text".
Disadvantage: It adds overhead, which may affect real throughput (if the bandwidth is anywhere near maxed out).
Layer 3 encryption, like IPSEC, is a "win" because higher-layer protocols can be blissfully unaware that encryption is occurring. You can "bolt on" IPSEC in the network stack and suddenly your applications are able to communicate securely over the wire.
Bolting on encryption in this fashion, though, won't necessarily eliminate the possibility of traffic analysis (since the destination addresses and payload sizes are still exposed to attackers for their statistical analysis pleasure). It will make interception or modification attacks a whole lot more difficult for attackers, though.
You owe me a citation in your paper. >smile<