Why Not A Free Market In Privacy?

leviramsey writes: "Julian Sanchez has written an article analyzing the privacy debate and suggesting a free market solution to the privacy issue on Liberzine.com. Very interesting idea that seems to make sense to me." While this essay doesn't lay out how this market might work in practice, it raises the interesting and often scoffed-at idea that sometimes we like to trade some of our privacy for various things, online and off, as a visit to Yahoo personals will prove.

Comments

Re:Like pollution credits?

[Black Parrot]

> The reason the power plants in California are in trouble is not because of anything EXCEPT too much government regulations.

I can't believe people are still posting that kind of claim. Every time the topic comes up, the following facts have to be pointed out:

• It was the utilities that pushed the legislation in the first place. They didn't complain a whit then about "partial deregulation". Instead, they arranged their investors a $28,500,000,000 bail-out at taxpayer expense, and billed it as a 10% rate cut.
  
• When Californians figured out how badly they had been screwed, they put up Proposition 9 to void part of the deal. The utilities put up $30,000,000 to fight P9.
  
• Since the legislation took effect, PG&E has reorganized itself into a parent company and two siblings. Now the left hand is making record profits by selling power to the right hand at scalper's prices, and the right hand is demanding another bailout due to all the money it's "losing".
  

This is a Royal Scam of the finest water. Don't let your "all regulation is bad" ideology blind you to that fact.

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Typical American bullshit

[Alex Belits]

"Let's declare that something can be traded on a free market, and everything will automagically adjust itself".

Things don't work this way -- if a decision how to value something is left for everyone in each case, ones with more negotiating power, force their decisions on everybody else. In this case corporations who will create their (low) privacy standards will easily leave consumers with no choice, and consumers would have to resort to inefficient and extremely hard to organize boycotts to get anything back.

I have seen people who honestly believed in Communist utopia, and they made more sense than people who honestly believe in this Libertarian utopia.

Re:Typical American bullshit

[Russ Nelson]

• if a decision how to value something is left for everyone in each case, ones with more negotiating power, force their decisions on everybody else.

If people get to make their own decisions (which is the case in a free market), then how is someone able to force their decisions on everybody else? Either you didn't write what you mean, or what you mean is incomprehensible.

-russ

Re:Typical American bullshit

[Alex Belits]

If people get to make their own decisions (which is the case in a free market), then how is someone able to force their decisions on everybody else? Either you didn't write what you mean, or what you mean is incomprehensible.

No sane person will make "his own decisions" when confronted on any important issue (more important than, say, price of a bagel in a coffee shop) -- he will look for someone else to make sure that large enough number of participants will make the same decision, so it will either become the only solution available to the opponent, or at least represent large enough piece of the market.

This is what I ,mean by "negotiating power", and this is what in simple case of prices and salaries companies exercise when they standardize their products and what workers exercise when they join unions. When things are more important than money (health, civil liberties, life), even if conflict doesn't lead to direct physical confrontations, various groups of people and organizations start all kinds of exercises of negotiating power -- recent example is Ashcroft's confirmation, where more organized Republicans forced large number of Democrats to vote contrary to their true opinion.

In the case of privacy the conflict is over a liberty of being able to keep private information. People want to keep it, however they need very complex and costly process of organizing a boycott to force companies to change their policies -- that forces each person to act as if very little of negotiating power is available to him. OTOH, companies have no trouble of creating all kinds of groups and alliances that force uniform privacy standards -- companies' executives expect that whatever horrendous infringemnet of personal privacy will be in the standard, joining the group will be more beneficial to the company than establishing a better privacy standard, as customers will expect low privacy, and once lost their personal information to one of companies in the group, they won't see any benefit in not "losing it again" to another company. To make things worse, companies may choose monopolists with some essential service (say, FedEx and UPS) and offer large payments for disclosure of customers' data to the rest of the group, thus making any attempt by other companies to respect privacy absolutely pointless, even if the original anti-privacy group will be small.

Overlooking the primary problem

[opus]

The author is overlooking the primary problem with a "free market" in personal information: information is replicable.

I may well choose, for rational reasons, to sell my name, address, etc. to one party. But due to the nature of information, that party is capable in turn sell it to a third party (and a fourth, and a fifth), without my consent. And if this is the case, I cannot know what I'm selling, short of negotiating a contract. Have I given my address to one party, or many?

This is the problem that Lessig's proposed strong property right in personal information is intended to solve. (In the same way that a strong property right with regard to copying literature, music, and computer code, is intended to solve the problem of the underproduction of creative works. Whether this solution is worth its price is a separate question.)

If I have a strong property right in my personal information, the transaction costs of selling my personal information are lowered: I know that, unless I have *explicitly* permitted someone to do so, they may not transfer my personal information to a third party.
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Re:Like pollution credits?

[King Babar]

Yeah, yeah. Now, ask yourself -- why did they want to deregulate in the first place? What was the incentive for deregulation?

Well, because some people thought that the market would become more effecient, and power would become cheaper.

We lived in California for just over 7 years, and during the period when they finally got the utility de-regulation plan enacted. And, I swear, I could never figure out why in the world most people wanted to do this. The utility situation in California (and you could include water in this as well) is a truly classic example of where markets will have a rougher time, because virtually every major change or transaction involves an external party who would not be taking part in the transaction if it were a conventional market.

The building and siting of power plants, for example, is a problem that comes up almost everywhere, but the costs to other parties of putting them wherever the grid thinks them most efficient are vastly greater in California than in most places. California generates a huge amount of it gross state product from the fact that it *is* California, the idyllic (-looking) paradise. In California, a huge determinant of the value of any piece of land is, to be quite frank, the view, and the clarity of the air and water, which are both kinds of "rights" that are extremely hard to deal with if the holders aren't a party to the transaction.

Now, what actually happened was the way people became party to these kinds of transactions was through the political system. Most specifically, the PUC and their right to regulate the placement and operation of power plants and the prices that could be charged. In return for this power, utilities were essentially granted a guaranteed rate of return (like most other places), which is a boring but perfectly profitable way to do business. Yes, there is no doubt that there were inefficiencies in that system, but, because it was political, all the affected parties were involved, and everybody could play. This was the reason why I find it hard to consider the PUC to be truly a central planning agency: everybody could and did put tremendous amounts of pressure on the PUC to have things their way, but always got compromise solutions. The problem, of course, was that some users believed that they could get better prices through a different system, and that it was worth the huge monetary cost of pushing hard on the political system in the usual fashion. This would have been okay, except that the compromise solution that was reached had some spectacular bugs in it that weren't fully appreciated at the time, but which could be (and have been) exploited to the hilt by power suppliers, who were (by law) completely separated from the utility companies themselves.

So, when I see what happened, I don't think of it as a market failure or a central planning failure, but as a political failure of the type that so very often crops up in California. Why California more than most other places? I think it is because the stakes are so much higher there than other places, and because there are incredibly strong regional political differences that make the place basically ungovernable. I cannot possibly imagine something like this happening in, say, Iowa. Or in a California that consisted of two or even three independent states.

well...

[Alien54]

I do not see that the big companies would go for this. After all, all of this source data has basically been collected for free, or been traded for something where they can pass of the cost to someone else (free dial ups, etc)

Now they would have to pay for it.

Maybe they would accept it, if it were forced on them, but otherwise there are alot of interests pushing for continuing the free ride.

What ARE you talking about??

[Russ Nelson]

The California misregulation of the electricity market was primarily caused by price controls. If you limit the amount that a price can rise, then if the product demand increases, supply will not increase to meet the demand. This is simple economic theory. Did you sleep through that class, too?
-russ

Re:What about the poor?

[DoorFrame]

So is it impossible for poor people to make any financial decisions on their own, merely because they are poor?

By neccessity right now, I cannot buy a car. It's too expensive for me, I cannot afford it. Is this a social injustice? I would gladly trade some personal information in order to get a substancial discount... does this mean I'm being exploited? Should laws be made to right this wrong?

What do *I* buy with condoms???

[Sir_Winston]

Well, rhetorical as it may be, I just had to answer this question with a story about a bunch of bored college kids and an all-night Wal-Mart. We didn't actually do this, mind you, but in our small college town there wasn't much to do on weeknights aside from renting movies or mindlessly roaming the Wal-Mart trying to pick up the few townies who were actually attractive and had all their teeth intact. But one night we were spitballing stuff to do and someone jokingly came up with a good way to freak out underpaid overworked teenage chack-out girls. Go with a bunch of guys to the Wal-Mart, or any such, and gather all the following, and anything else questionable when taken together: the biggest box of condoms, a length of nylon rope, some Polaroid film, duct tape, one of those sleeping masks, several pairs of junior-miss sized panties, whipped cream, K-Y, ski mask, some lollipops, some Lady Gillette razors and women's shaving gel, a couple issues of children's magazines like Nickelodeon Kids or Teen Beat or something, and anything else either sexual, related to youngsters, or with possible bondage uses. That poor, poor clerk wouldn't quite know what to make of all that stuff purchased together by a bunch of college boys--separately, it's entirely innocent; bought at once, it looks quite suspicious. Of course, I don't actually recommend purchasing all that stuff together, unless you're prepared to explain your sick joke to some authorities if the clerk really freaks out.

But, getting back on topic, those privacy-stealing store discount cards you mentioned are a real nuisance. So few people who have them realize that their shopping habits are being kept in databases, sold to marketers, and being put in a position to be used against them. I can't vouch for its truthfulness, but I did read an account that someone in a small town who was suspected of being the local marijuana and coke connection had had his shopping records used against him--the sheriff's office convinced a judge they had cause for a warrant on various other accounts, and subpoenad his purchase records to see if he bought unusual quantities of plastic baggies, straws, and other potential tools of the drug trade. Now, the story may well be spurious, like the old man-wakes-up-in-tub-of-ice-with-kidney-gone story, but it does illustrate the dangers here. Your purchasing records persist if you use such a card under your own name, and your buying habits could be used against you. In this case, it was a drug dealer who had his buying habits examined--but even discounting the popular opposition to this War-on-Drugs rhetoric bullshit, you can never know where this could lead. What if you're suspected of tax evasion, and the IRS decides your shopping records might show that you live above your reported means? Should they get your shopping records? What if they don't even need a subpoena, what if they can just buy your data on the open market, with no oversight? Background checks are now commonplace in job screenings and insurance applications--what if employers and insurance companies start looking at people's buying habits, to weed out people who buy too much alcohol or too many unhealthy foods? We live in an information society, and it's not at all extremist or unrealistic to think it's just a few steps from where we are now to a very Orwellian state of affairs...

A Few Responses

[juliansanchez]

I'm a bit surprised, but naturally quite happy, that my little piece has generated so much discussion. Let me respond to a few criticisms.

• "This is just a rehash..." Yeah, the position I'm taking isn't novel. If it were, Shapiro and Rotenberg couldn't have already attacked it, giving me someone to argue against.
• "Disinformation"- OK, some people will lie on forms. If it becomes economically worthwhile to do so, firms will develop more robust verification schemes like Adult Check or rely on digital signatures publicly linked to verifiable identities. Or maybe they'll just be willing to accept a certain amount of information pollution.
• "You can't have a market for a 'negative good;' it's like paying extortion money, and generates perverse incentives." Privacy markets aren't really analgous to the case of the thug asking for a payoff to refrain from breaking your windows. Unlike the victim in that case, users ultimately control what information they want to release to websites. Someone's bound to mention cookies-- I'll just point out that those can be shut off, and more importantly, that future versions of the popular browsers are supposedly incorporating more robust cookie-screening features. Isn't it generally better on face to let a problem be tackled by this kind of individualizable, technological solution than by top-down control?
• "But you still need government to enforce contracts." Sure. I'm not an anarchist-- if a company lies about their practices in a privacy policy, that's fraud. Same as when any other business lies about their product or practices. You should be able to take them to court.
• "Who would bother to do all this haggling?" or (in economese)"This raises transaction costs- Inefficient!" I tried to deal with this objection in the article, but let me add the following to what I said there. There exists a strong incentive for either 3rd parties or software protocols to be developed, which make it easy for users to deal with privacy issues. Maybe you set your browser to block any page demanding more than a certain amount of information. Or maybe you allow it to offer you various prices on a case by case basis, or to auto-accept offers of (say) a certain discount level for different kinds of information shared. I flubbed in the article by attributing similar features to P3P, when apparently they've been removed since I wrote the piece some months ago. I'd still say it's a safe bet that something along those lines will emerge.
• "But you can't sell yourself into slavery, why should you be able to sell your privacy?" This is just a bizarre analogy-- there are very specific reasons why slavery contracts are morally suspect, and they don't cross apply to privacy in the least. If I want to publish all my private information on my webpage, I have a free-speech right to do so, don't I? If privacy were truly inalienable, I could legitimately be prevented from doing this by law. If we then decide privacy is *not* inalienable, the addition of an economic incentive to speak can't possibly make it so.
• "If most people don't care about privacy, it'll be harder to find sites that respect it." I think this is also addressed in the article. There's no inherent right to shop on the web on your most preferred terms. And I certainly deny that we have a right to make everyone pay the costs of the privacy we demand.
• "This is wacky free-market utopianism with its head stuck in an econ textbook." Actually, I thought of the article's primary argument as moral, not economic. But as for the economics-- what in particular is wrong with the argument I lay out? This "perfect markets fantasy" thing is a strawman-- nobody believes in that, least of all me. The question is whether markets tend to approach an efficient outcome better than do regulatory schemes. I don't need to claim that markets will make all the children of the world sing together in harmony, just that they'll perform certain tasks more effectively than the alternatives.
• "You're a silly libertarian who argues at an 8th grade level and can't write." Guilty as charged.

-julian sanchez

Re:Like pollution credits?

[namespan]

Yeah, yeah. Now, ask yourself -- why did they want to deregulate in the first place? What was the incentive for deregulation?

Well, because some people thought that the market would become more effecient, and power would become cheaper.

Now a few people realized that any utilities market where the infrastructure is as expensive and hard to create as our current power market wouldn't work like a commodoties market.

So they introduced price controls as a compromise. After all, since the market was going to get more effecient, nobody should have had to fear raising prices, right?

Ooops.

Granted, it is stupid to half-deregulate a market and expect it to work like a market. But let me reiterate again: it's just like phone service or any other infrastructure-expensive utility. The bar to entry into the market and the lock in to a prevailing system is too high for power companies to become a truly free market.


--

Like pollution credits?

[perdida]

It is true, that if you allocate any good, that the market cna find some kind of 'efficient' way of distributing that good. For example pollution credits. Of course, we all know that the market, given a free hand, will not necessarily distribute goods in a socially efficient manner. In California, many plants closed because they used up their pollution credits producing extra electricity for a market that would suck up as much as they put out. Now, nobody is profiting and electricity distributors are threatened with bankruptcy. A little government intervention could have forestalled this greed.

Privacy is of value but it is also political. Surely the privacy of many can be protected if privacy is purely a commodity. However, the privacies that are most important- those of the people that would threaten the established order of things- are far less likely to be able to afford that protection.

In a healthy "liberal" society, with at least the basic "freedom of opportunity" that substitutes for real egalitarianism in America, everyone must enjoy a sphere of confidentiality in which he or she can get honest advice and betray his or her real strengths and weaknesses. Only in privacy can you be youraself without fear of exposing your vulnerabilities.

Re:Like pollution credits?

[DoorFrame]

The reason the power plants in California are in trouble is not because of anything EXCEPT too much government regulations. They were told that there was suddenly a free market for them to buy energy. This is good. However, they were told that they were not allowed to raise the price to consumers. This was bad.

When there's a free market for you to buy your basic neccessities of production, but not a free market to sell your output, what chances do you have to not go bankrupt when you're operating costs rise?

The fault for the situation in California rests entirely at the feet of the politicians who deregulated half, but not all, of the energy market. It was a foolish idea doomed to failure.

Trading privacy?

[pope nihil]

Fine. Let people trade their privacy for money. We do it already with these ad banners that send cookies that track what sites you visit and what ads you click. We do it with "free" internet service providers and "free" services like hotmail that require cookies and javascript and the latest browsers. Consumer profiling is BIG business because advertisers want to target the right audience. You know what? Fine. All I care about is the ability to opt out. Let me pay to NOT see ads. Let me pay to NOT be tracked and profiled. You know what? I have a policy of not doing business with anyone that can't win my business based on the merits of their product.

Re:What about the poor?

[DoorFrame]

He addresses this in the article.

Why do you assume the poor will be willing to trade their privacy for cheaper products? And why would you dream of prohibiting them from doing so if they wish. These people are poor, but they're still rational. If they want to trade some information about themselves for a $100 off a computer, great! Cheaper computers for them and a better educated society.

To assume that you can make better decisions than someone who is poor, simply BECAUSE they are poor, is extraordinarily insulting.

Re:Antioch's is not the model to use

[DoorFrame]

Uh, I don't know if you actually read the article, or just skimmed for something to karma whore and quote, but that was the same point made by the author. He said that that proposal, made by someone else, was a BAD idea. He said that they shouldn't need to ask your permission every step of the way because you quite frankly granted them some permission by participating in the system at all.

You should read the story before commenting on it.

Free Market in Privacy?

[Anonymous Coward]

After a pleasant evening with my buddy John...
[john] Here are $10 for you, so you don't tell my wife Sarah where we went this evening.
[me] ok.

the next day...
[sarah] So where did you and John go last night?
[me] John gave me $10 to keep it shut.
[sarah] Here are $11 for you.
[me] Nude dancers