[LINK] Professors Call Both Sides Wrong on Privacy
Bernard Robertson-Dunn
brd at iimetro.com.au
Thu Oct 26 06:56:47 AEST 2006
Professors Call Both Sides Wrong on Privacy
Sue Bushell
CIO
24/10/2006 12:40:06
http://www.cio.com.au/index.php/id;1659801180;fp;4;fpid;21
Should households be granted the right to control their personal
information and to refuse to give it out, as some privacy advocates
insist? Or are those economists right who argue that privacy in any form
is harmful since it restricts information flow and hence inhibits
decision-making, increases transaction costs and encourages fraud?
Two professors at University of California, Berkeley's Haas School of
Business have recently weighed in on this seemingly endless debate to
argue their conclusion that neither approach is right.
In an article in the September issue of the journal Quantitative
Marketing and Economics, Professors Benjamin Hermalin and Michael Katz
note that privacy can be efficient in certain circumstances but that
privacy property rights - personal control over one's personal
information - are often worthless.
"Our analysis demonstrates that there are complicated tradeoffs missed
by both sides of the debate," they write. "Certainly in the case of
employment, changes in privacy policy can make some households winners
and others losers."
The authors note that there has been a long history of contentious
policy debates and governmental efforts to protect personal privacy,
particularly the ability to maintain control over the dissemination of
personally identifiable data: privacy as secrecy.
And they say recent technological developments in information collection
and processing have heightened privacy concerns, with online bookstores
knowing what you like to read, TiVo reporting personal viewing habits to
the company's central database, and airlines keeping a record of where
you travel. Meanwhile every year privacy bills are introduced in state
legislatures and the US Congress in response to privacy concerns, yet
there is little consensus on the appropriate approach.
"There are many calls for strong governmental intervention to restrict
the use of personally identifiable data. However, there are also calls
simply to establish appropriate property rights to information on the
grounds that market forces will then lead to efficient privacy levels,"
they say.
The authors note that proponents of the Chicago School have labelled
privacy harmful to efficiency because it stops information flows that
would otherwise lead to improved levels of economic exchange. And they
agree there are some situations in which allowing households to reveal
personally identifiable information is beneficial because it allows
firms to make tailored offers that facilitate transactions that
otherwise might not have occurred.
Yet they insist that, contrary to the Chicago School argument, the flow
of information from one trading partner to the other can reduce ex post
trade efficiency when the increase in information does not lead to
symmetrically or fully informed parties.
With so many people making extreme claims in discussions of privacy and
related public policy, and with so little understanding of the
underlying economics, it is important to identify the fundamental forces
clearly, they conclude.
"Both sides of the e-commerce privacy debate have overstated their
cases," they say.
While failing to come to any definitive conclusions about whether one
can identify conditions under which public policy should or should not
promote privacy, they authors conclude that the assignment of privacy
rights to personally identifiable information may have no effect on
agents' equilibrium welfare levels and need not lead to an efficient
equilibrium privacy level.
"In some situations, the only effective policy would be explicitly to
block the dissemination or use of such information. Public policy could
block dissemination in several ways. One is to make it illegal to reveal
personally identifiable data. Another is to destroy employment or prison
records or other forms of tangible evidence, which would prevent
households from credibly revealing the information even if they chose to
do so. A related policy would be to refuse to enforce sanctions against
people who lie about their protected characteristics," they conclude.
--
Regards
brd
Bernard Robertson-Dunn
Sydney Australia
brd at iimetro.com.au
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