I want to begin by saying I liked the second half of Professor Cohen's book significantly more than the first. This might be in part because the technical discussion resonated more with my background and interests. I would like to focus this post on one particular argument presented by Professor Cohen, about why the market-libertarian approach fails to properly explain the current practices in the area of privacy. Professor Cohen observes that a market-libertarian rationale depends on a certain degree of noninvolvement by the government, which is not the case when it comes to privacy. While I believe Professor Cohen's observation that the interplay between private (corporate) actors and government undermines the application of a market-libertarian explanation is both strong and interesting, I think another factor bolsters Professor Cohen's rejection of the market-libertarian approach: the individuals' lack of information and understanding.
I am no economist, and forgive me if I am mistaken, but I understand that an efficient market is in part premised on the availability of information to the participants in the market. A transaction is less likely to be pareto-efficient unless both parties understand the cost and value of what they are exchanging. In the case of privacy (and we are, ironically, discussing a market for information), the issue revolves primarily around two markets: on the one hand is the market between individuals and providers of services (Google or Facebook to name two well-known examples); on the other is the market between the providers of services and companies who use the former to advertise their products.
I don't think anybody is troubled by the transactions between the corporate entities. But I think there should be a concern with respect to the market between individuals and service providers. While these issues have received a lot of public attention in recent years (especially with fiascos like the Beacon program, mentioned by the author), it isn't clear that people understand what providers do with the data they collect. In fact, the lack of understanding of these issues by consumers takes place at many levels: first, individual users might not even realize their private information is collected at all; second, they might not realize the level of detail or the extent to which data is being collected; third, they might not realize to what purpose this data is being used or shared; and finally, they might not understand the consequences of the distribution of their private information. Being somewhat of a geek myself, I think I understand the first three, but I'm not sure even I understand the last one. I realize a lot of information is collected about me, but the consequences of what might happen to that information in ten or twenty years are hard to predict. But if anything, I understand that there are potential risks to handing this information to companies like Google or Facebook.
Most people probably don't even realize that their email is being scanned to provide them with targeted advertising. Of course, the emails themselves aren't being shared with anybody, but a lot of personal information can be extracted: age, interests, etc. Would these individuals be using the same email service if they knew that their information was being collected, analyzed, and perhaps even sold? Sure, companies provide Terms of Service that make it clear that they connect and use personal information about their users, but who actually reads the TOS?
My point is that if consumers don't understand the product they are paying for, or even that they are paying for it, it probably is not an efficient market. This argument might be simplistic, but I think it bolsters Professor Cohen's point that the market-libertarian approach is not sufficient to state that our current practices in privacy are the result of an efficient market.
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