Author(s)
Alessandro Acquisti, Curtis Taylor and Liad Wagman
Source
Journal of Economic Literature, Vol. 54, No. 2, pp. 442-492, 2016
Summary
Consumers and firms face trade-offs in deciding when to protect or disclose personal information. Whether privacy makes consumers, firms, or society as a whole better off varies widely depending on the context. Consumers often lack information about how data will be used.
Policy Relevance
Protecting privacy is not a “one-size-fits-all” problem. Even when data use is beneficial, privacy concerns should be addressed.
Main Points
- Personal information has characteristics of a “public good;” once shared, third parties can copy and use the data, but the essence of privacy is being able to control what information is shared.
- Privacy has both harms and benefits; privacy allows people to conceal negative traits such as debt, but confidentiality encourages people to seek help for problem like addiction.
- Strict “opt-in” privacy benefits large firms with market power, as newer, smaller firms will lack information about consumers.
- On platforms, like Google or Amazon, targeted marketing can increase competition; but sellers tend to manipulate consumers to make the most profitable purchases, not those that fit consumer’s needs the best.
- The European Union’s Privacy Directive, which requires consumers to opt in to the use of tracking cookies, reduces the effectiveness of some types of online ads about 65%.
- In the health care sector, the use of data can have great benefits, but patients and providers will resist using the data if privacy problems are not resolved.
- Restricting employers from using some data in hiring can increase or reduce discrimination.
- Holding orchestra auditions behind a screen increases the number of women hired.
- Limiting employer access to criminal records reduces hiring of some groups.
- Many employers learn about applicants through social networks like Facebook.
- Strict financial privacy regulation can make it harder for low-income consumers to obtain loans or credit cards, or increase lending to high-risk consumers, leading to unpaid loans.