A Primer on the Economics of Privacy

Eyes wide open: Today’s post was created in partnership with DeleteMe. It includes my analysis of market failure when the good we’re talking about is information about you. I believe every word of what follows, but it’s important to know that DeleteMe’s an industry player who profits when you buy their solution.

Your inbox is so full you can’t find the messages that matter. When you get home, your mailbox is groaning with the weight of a thousand unwanted catalogs. And over dinner, you can’t get any peace as your phone rings with recorded messages offering you great deals or great candidates.

At first blush, you might blame the spammers and scammers for this mess. And they are bad guys. But at a deeper level, it’s all economics.

My favorite starting point for thinking about this is a simple piece called “Economic Aspects of Personal Privacy.” It was written in 1996 — at the dawn of the internet age in 1996 — by Hal Varian, an economics professor who went on to become Google’s Chief Economist. It’s a lovely example of how far you can get with a few simple economic principles.

It’s a basic three-step argument.

Step #1: Defining privacy (it’s not secrecy). We talk about privacy as if it means hiding things, but that can’t be right — we hand over information about ourselves constantly. I want my airline to know I’m a pescatarian.

What we care about isn’t whether information about us exists, it’s how it gets used. I’m fine with my dentist having my phone number. Less fine when a Nigerian prince calls me to discuss a Florida real estate opportunity.

So the thing being traded here isn’t information. It’s use rights over information.

When it comes to data privacy, we care less about whether information about us exists, and more about how it’s used. Photo by Tobias Tullius on Unsplash

Step #2: So give people the property right. Assign people ownership over how information about them gets used. This is particularly important for secondary use. It’s obvious when I sign up for my…