Is the Market Efficient at Producing Privacy?

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March 14, 2008

Is the Market Efficient at Producing Privacy?

Ed Felten thinks through some issues raised in a decent Slate essay:

“people say they want more privacy than the market is producing. Why is this? One explanation is that actions speak louder than words, people don’t really want privacy very much (despite what they say), and the market is producing an efficient level of privacy. But there’s another possibility: perhaps a market failure is causing underproduction of privacy.

[...]

“Companies can signal a commitment to privacy, but those signals will be unreliable so customers won’t be willing to pay much for them — which will leave the companies with little incentive to actually protect privacy. The market will underproduce privacy.

“How big a problem is this? It depends on how many customers would be willing to pay a premium for privacy — a premium big enough to replace the revenue from monetizing customer information. How many customers would be willing to pay this much? I don’t know. But I do know that people might care a lot about privacy, even if they’re not paying for privacy today.

I like the emphasis on signaling vs. substantive behavior. As the Slate essay noted, signifying "goodness" has been key to Google's ongoing success as a standard bearer for what the essayist called "immaculate capitalism." That keeps it ahead of a curve that overtook Ask with the Ask Eraser debacle.

Who really knew Ask? Not many people, so it didn't have a lot of perceived goodness to bank. It didn't help that Ask.com went through a few branding changes (and is now flailing about trying to figure out what it even thinks it should be doing. So when a company that hasn't established a very stable public persona tries to roll out something like Ask Eraser, when the loopholes in the service manifest under mild scrutiny there's no banked trust. Google, in the meantime, at whose (among others') behest Ask was compromising the usefulness of Eraser, was pleased to collect all the information people thought they wouldn't be giving to Ask.com.

Ask came off looking a little shady, Google went back to writing circular justifications for all its data gathering in its blog.

(Link)