The Federal Trade Commission's Inner Privacy Struggle

Privacy and Security and Innovation and Economic Growth

Article Snapshot

Author(s)

Chris Hoofnagle

Source

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

Summary

The Federal Trade Commission’s (FTC’s) privacy cases involve attorneys in the Bureau of Consumer Protection and economists in the Bureau of Economics, who are skeptical of privacy crusades. In future, the Bureau of Economics will play a larger role.

Policy Relevance

When the FTC brings cases under an “unfairness” theory, economists play a greater role. Economists’ privacy skepticism reflects their methods, such as cost-benefit analysis.

Main Points

  • Attorneys in the FTC’s Bureau of Consumer Protection choose which privacy cases to bring, but the attorneys’ efforts are evaluated by economists in the FTC’s Bureau of Economics, who are more skeptical of strong privacy enforcement.
     
  • Economists resist assigning an economic value to privacy partly because services that are "free" to consumers do not have a price tag, and these services may deceive consumers in subtle ways that do not affect the price of the service; also, individual privacy preferences vary.
     
  • Economists are reluctant to rely on consumer surveys; some argue that consumer behavior contradicts consumers' statements about privacy.
     
  • Economists are often more conservative; also, the culture of the FTC has been shaped by policies favoring freedom of contract; some mainstream economists, such as those who study behavioral economics, better support consumer protection goals.
     
  • Lawyers are comfortable with awarding damages for subjective injuries such as pain and suffering; some economists support a broad view of harm as well, which, in privacy cases, could include tangible and intangible, and direct and indirect costs and benefits.
     
  • When the FTC brings cases under a theory of deception, the Bureau of Economics is not involved because deception is presumed to be harmful; however, when a case is brought under a theory of unfairness, the FTC must show a substantial injury, which calls for economic analysis to show that the benefits of ruling against an information practice outweigh its costs.
     
  • Privacy advocates should help the Bureau of Economists recognize economic injuries.
     
    • This approach would strengthen the FTC’s privacy enforcement efforts overall.
       
    • This agency should provide more remedies that require firms to disgorge profits or pay restitution in matters that are now often settled with no monetary damages.
       
  • The Bureau of Economics could shape an enforcement strategy that stimulates a market for privacy, causing consumers to pay more attention to the value of privacy and the data that they proffer to “free” online services such as Facebook.
     

 

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