Economics of Privacy

1
Economics of Privacy

• K778 Security, Privacy and Trust

2
Agenda

• Introduction
• Economics of privacy
• Ownership and Control of Privacy
• Society
• Governments
• Organizations
• Individuals
• Questions

3
Questions

• What is the cost and value of privacy?
• Given that the degree of privacy is variable.
  What is the right amount, and how is that
  determined?
• How and by who is/should privacy be allocated,
  managed, controlled?

Introduction
4
Privacy from Whom?
Introduction

• Governments
• Federal
• Provincial
• Municipal

Individuals

• Organizations
• For Profit
• Not for Profit
• Health Services

Society
5
Privacy

• Three parts to privacy considered
• To be left alone, to control intrusions into
  personal environment
• To control personal information, use and
  disclosure
• Ability act/correct false light
• Not considering publicity
• Basis of privacy may come from philosophical,
  legal and social rules, regulations, and
  conventions
• Privacy is about creating and maintaining
  asymmetries in distribution of information

Introduction
6
Economics of Privacy

• Cost
• Value
• Price
• Externalities when third party involved
• It can be advantageous for both parties to have
  shared information, and also not

Economics
7
Information of value

• Demographic
• Personal, e.g. Genetic
• Behavioral
• Intentional
• Decisional
• Transactional

Economics
8
Economic Impact of IT Internet on Information
Costs

• Increased data collection and storage
• Reduced acquisition and transaction costs
• Reduced cost of aggregation
• Reduced cost of matching
• Reduced cost and increased ability for
  surveillance
• Reduced cost of communication
• Reduced cost to access data stores
• IT may make it possible for individual to control
  privacy

Economics
9
Ownership and Control of information

• Determination of ownership
• Common law
• Statutory
• Ethical-moral
• Cultural
• Transfer/sale of ownership
• Renting/Leasing
• Right of publicity
• Surveillance or Transactional

Ownership
10
Statutory Regulation

• Regulation
• In traditional industries, regulation is often
  considered for monopolies to address windfall
  profits to manage externalities and information
  asymmetries to ensure continuity or availability
  of service to control excess competition for
  public goods and situations of scarcity and
  rationing and for circumstances where bargaining
  power is unevenly distributed or for other social
  policy aims (Baldwin, et al. 1995 in 2).
• Piece wise or overarching
• Typical regulation lifecycle is an order of
  magnitude longer than technological advances
• Monitoring and enforcement
• Reduces market efficiency

Ownership
11
Self Regulation

• Self Regulation or third party intervention -
  Truste
• Not likely to obtain 100 compliance from
  organizations with low customer service
  objectives
• Who funds third party controls their actions
• Does not impede market development

Ownership
12
Technological - Market Solutions

• Information Markets - already exist
• Assign property rights, and a market in which to
  trade, lease 4
• P3P
• Each party can make own decisions, requires
  sophistication

Ownership
13
Consumer awareness

• Rights
• Value of their privacy to others
• Of third party transactions being made
• Fairness of trading partners
• Information being gathered
• Usage of information

Ownership
14
Information Asymmetry Equals Cost - Value

• Governments
• Federal
• Provincial
• Municipal

Individuals

• Organizations
• For Profit
• Not for Profit
• Health Services

Society
15
Cost of Privacy to Society

• Public policy issues - increased cost due to
  privacy
• Electronic commerce
• Foreign trade
• National Security
• Criminal activities
• Human rights
• Externalities
• Example Individuals opportunity cost when
  contacted by tele-marketer who obtained list
  indirectly

Society
16
Value of Privacy to Governments

• Ability to perform responsibilities
• Law enforcement
• Security
• Trade
• Finance
• Self interest

Governments
17
Cost of Privacy to Governments

• External
• Increased cost to perform responsibilities
• Avoidance by organizations individuals
• Internal
• Decreased productivity
• Compliance with Freedom of Information Acts

Governments
18
Value of Privacy to Organizations

• Maintenance of competitive advantage
• Proprietary information
• Customer information
• Strategy and planning
• Avoidance of disclosure
• Financial
• Environmental
• Decisions

Organizations
19
Cost of Privacy to Organizations

• Allocate resources to obtain information
• Reduced information quality
• Reduced productivity
• Compliance costs

Organizations
20
Value of Privacy to Individuals

• Reduce externalities
• Receive compensation for information
• Feeling of control
• Participation in risky behavior

Individuals
21
Cost of Privacy to Individuals

• Reduced quality of commercial solicitations
• Increased free riders,
• Avoidance behavior
• Maintenance of aliases
• Searching and maintenance of databases

Individuals
22
But What Do Consumers Really Do?

• Public opinion polls - majority of American
  citizens concerned for privacy 6
• Experiment by Spiekermann et al 8
• Used agent mediated online shopping, agent asked
  questions to aid shopping
• Regardless of self-reported privacy preferences,
  answered most questions in web shopping
  experiment, even if highly personal
• EU style versus open style privacy statements had
  no effect on information disclosed

Individuals
23
References
24
Questions?
Questions