Is the market for digital privacy a failure?
Conventional wisdom holds that the market for digital privacy fails owing to widespread informational asymmetry between digital firms and their customers, behavioral biases exhibited by those customers, and negative externalities from data resale. This paper supplies both theoretical and empirical reasons to question the standard market failure conclusion. On the theoretical side, I argue that digital markets are not qualitatively different from markets for other consumer goods. To wit, just as in traditional markets, it is costly to measure product attributes (such as “privacy”) and, just as in more traditional settings, some firms offer credible commitments to reduce the threat of potential opportunism. On the empirical side, I conduct a survey of Google’s users. The most important results of this survey suggest that, at least with respect to Google, (a) the extent of informational asymmetry is minimal and (b) the demands for “unconstrained” and “constrained” privacy diverge substantially. Significantly, 86% of respondents express no willingness to pay for additional privacy when interacting with Google. Among the remaining 14%, the average expressed willingness to pay is low.
KeywordsDigital privacy Survey Market failure Privacy paradox
JEL ClassificationD23 D62 K24 L86
I wish to thank Chris Coyne, Peter Boettke, Peter Leeson, William H.J. Hubbard, Alessandro Acquisti, David Lucas, Noah Gould, Nicholas Freiling, and an anonymous reviewer for helpful suggestions. Any errors are my own.
Caleb Fuller received funding from the Mercatus Center at George Mason University to pay Haven Insights, LLC to conduct the initial survey. In response to a revise and resubmit request, a modified survey was conducted by Haven Insights, LLC and its findings replaced the initial survey’s results. The funding for the second survey was provided by the Charles Koch Foundation.
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