Measuring Costs and Benefits of Privacy Controls: Conceptual Issues and Empirical Estimates

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By: Joseph J. Cordes & Daniel R. Pérez

January 30, 2019

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As increasing amounts of personal information become potentially available to internet providers, the government, and employers, a lively debate has emerged concerning the role of public policy in ensuring a proper balance between the various parties who may benefit from greater access to information and the protection of individual rights to privacy.

Additionally, emerging technologies such as highly automated vehicles and unmanned aircraft systems bring privacy concerns to the forefront—particularly regarding the proper role of federal regulatory agencies. Accordingly, regulatory agencies currently face the difficult task of balancing their objectives of issuing sensible regulations that offer protections to consumers with allowing continued innovation and use of these emerging technologies.

Achieving these goals will require agencies to base their rulemaking on a thorough analysis of regulatory costs and benefits, along with conducting retrospective ex post review of regulatory impacts. Accordingly, usable estimates of consumer privacy are a benefit to federal regulatory agencies. As the U.S. economy grows exponentially reliant on data generated by the collection of individuals’ personally identifiable information, regulatory agencies will be increasingly reliant on valid, empirical measures of consumer valuations of privacy.

This article strives to contribute to the development and greater use of such empirical measures. Drawing on the economics of privacy literature, we summarize why the costs and benefits of privacy controls should be measured in principle. We then discuss attempts that have been made to measure the costs and benefits of privacy control. Finally, we synthesize the various findings to advance promising practices for generating useful estimates of U.S. consumers’ valuation of privacy.

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