The Missing Role of Economics in FTC Privacy Policy

Privacy and Security and Competition Policy and Antitrust

Article Snapshot

Author(s)

James C. Cooper and Joshua Wright

Source

in The Cambridge Handbook of Consumer Privacy, Jules Polonetsky, Evan Selinger & Omer Tene, eds., Cambridge University Press, 2018, pp. 465-488

Summary

Privacy regulation restricts information flows, the lifeblood of the digital economy, and have significant economic impact. Yet actions by the Federal Trade Commission (FTC) to protect privacy often lack economic analysis and fail to provide clear evidence of consumer harm.

Policy Relevance

Rules to protect privacy should be based on evidence of harm to consumers and economic analysis.

Main Points

  • The FTC should explain the harm its privacy actions will remedy; the claim that consumers do not expect information to be shared for marketing does not amount to a substantial consumer injury.
     
    • A mere failure to meet expectations does not justify FTC action.
       
    • Material lies, or serious harms to dignity, autonomy, or seclusion can justify action.
       
  • The FTC should recognize empirical evidence of consumer behavior online, which shows that consumers are willing to trade their information for tiny amounts of compensation, and are unwilling to pay much to avoid data collection.
     
    • Two-thirds of consumers are unwilling to pay for Gmail service that did not scan email; the remaining third would pay at most $15 per year.
       
    • Consumers are comfortable with the typical give and take of information online.
       
  • The FTC Act defines statement as deceptive if the statement is both untrue and material; the FTC should not assume that statements in privacy policies are material.
     
    • Claims made in television ads are assumed to be material; this makes sense, because the advertiser makes claims to draw consumers to his product.
       
    • Statements in privacy policies are probably not material, as the policies are written for legal purposes, and most people do not read them.
       
  • Privacy policies that prevent firms from making decisions based on accurate data such as a bad driving record or credit history would do more harm than good; policies that prevent decisions based on racial or religious discrimination are justifiable.
     
  • Policies like “privacy by design” limit the collection of data and are likely to exacerbate serious problems in the market caused by lack of information.
     
  • Some FTC consent agreements prevent firms from collecting data for twenty years, or limit firms’ ability to merge data sets without consent; this data is essential to competition and innovation, and the FTC seriously underestimates the costs of its regulations.
     
  • The rule that consumers must “opt in” before firms can sell data makes the data less marketable, and the firms have less reason to ensure that it is accurate:
     
    • Regions with opt-in rules have higher foreclosure rates.
       
    • Strict health privacy laws slow deployment of information technology in health care, and worsens patient outcomes for some populations, such as minority babies.
       

 

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