Privacy and Market Failures: Three Reasons for Concern, and Three Reasons for Hope

The opening panel at the University of Colorado—Boulder’s “Economics of Privacy” Conference was asked to tackle an important but perilous question: Is there a market failure for information privacy? The question is perilous, because the term “market failure” is unfortunately used, and misused, to refer to different things (from market outcomes that are not Pareto efficient, correctly; to, incorrectly, any market outcome one happens not to like); but so is also (notoriously) the term “privacy.” The question, however, is also important: it calls us to consider whether market forces can adequately “protect” information privacy—and, in turn, what should be the essence of such protection, and what level of protection may be considered adequate. Hence, the initial query can be rephrased as: Will market forces be able to maintain a desirable balance between privacy and disclosure, in a world where most of our personal and professional lives unfold trails of electronic data, and where powerful economic interests favor information availability over information protection?