Applications Want to be Free: Privacy Against Information

Economic analysis shows that the benefits of online information collection, such as ad-supported applications and content, greatly outweigh any costs or risks.

Current arguments for increased privacy regulation are not based on economic theory or evidence and instead rely on anecdotes or a perceived inherent "right" to privacy online. As a result, policymakers should be leery of making radical changes to the current privacy regime without carefully considering the economic consequences. Rubin, TPI Senior Fellow and Professor of Economics at Emory University, and Hammock, Adjunct Professor of Economics at Middle Tennessee State University, advise that "arguments for increased online privacy are based on rights (rather than efficiency) and anecdotes (rather than data)." Moreover, advocates for stricter privacy regulation do not acknowledge the benefits created by the current system of information collection, where more available information leads to more targeting and so more valuable advertising and, as a result, more free applications and content. The authors also argue that some concerns voiced by advocates, such as data breaches and identity theft, are information security problems, not privacy issues, so restricting information collection is not an appropriate solution. "This is like arguing that doing away with privately owned cars would be a means to reduce automobile accidents – the cure would be worse than the disease."

Rubin and Hammock specifically address whether a default opt-in system for data collection would be superior to the current "opt-out" system, where consent is implied unless consumers act to prevent information being collected. Consumer surplus from web services, estimated by some to be $100 billion in the U.S and Europe, is significantly larger than the value of avoiding information collection, estimated to be $28 billion. The authors conclude that "the fact that the collection of personal information has generated such a huge surplus of benefits in excess of costs suggests that we should be reluctant to impose fundamental changes." The authors also warn against basing policy decisions on surveys that suggest consumers dislike targeted advertising and information collection, arguing that the opinions are not evidence that consumers are being harmed. Rubin and Hammock conclude that the current system of information collection and free online services works well in the United States and urge policymakers to view the issue in economic terms.