Is the market for digital privacy a failure?

Caleb Fuller

Public Choice, 2019, vol. 180, issue 3, No 8, 353-381

Abstract: Abstract 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.

Keywords: Digital privacy; Survey; Market failure; Privacy paradox (search for similar items in EconPapers)
JEL-codes: D23 D62 K24 L86 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11127-019-00642-2

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