Privacy as a Public Good

Abstract

Privacy is commonly studied as a private good. The assumption on both sides of the Atlantic is that my privacy is mine to protect and control, and yours is yours. This misses an important component of the policy problem. An individual who is careless with data may expose not only extensive information about herself, but about others as well. The danger has two sources, one direct and one indirect. A piece of personal information about one individual can directly reveal personal information about a second individual. Consider, for example, an individual who posts a sensitive photograph online, in which she is accompanied by others. The consenting individual also indirectly empowers some intermediary to increase its ability to recognize patterns. The relevant example here is a social network that can make predictions about one consumer’s action based on the aggregated data it has obtained from others. These negative side effects of being careless with one’s own private information can be productively studied in terms of welfare economics. Quite often, making one’s own information available imposes a negative externality on non-consenting outsiders. Through this property, privacy is not a private, but a public good. Welfare economics defines a good as public if it has two properties. First, those who have made no contribution to the provision of the good are not excluded from benefiting from it. Second, the fact that one individual has benefited does not reduce the benefit for another individual. To illustrate: if I refrain from posting the photo that shows me with my colleagues at a dive bar, my own and my colleagues’ privacy are protected simultaneously. And the fact that I have benefited from this privacy does not diminish the benefit my colleagues derive from it as well. There is, however, a hitch. If my colleagues are behaving badly and hilariously, the benefit I, personally, gain from posting the photo to a social network site may outweigh my personal loss, although not everybody’s overall loss, of privacy. If all relevant individuals maximize private benefit, and expect all other relevant individuals to do the same, neoclassical theory predicts that society will achieve a suboptimal level of privacy. This prediction holds even if all individuals cherish privacy with the same intensity. As the theoretical literature would have it, the struggle for privacy is destined to become a tragedy. Yet there is hope. Both field data and experimental evidence draw a more benign picture. When made aware of the negative externality, not all individuals recklessly ignore it. If they gain the impression that a sufficient fraction of relevant others aims at containing the risk, they are willing to make an effort themselves. If rudimentary forms of institutions are made available, like vigilance and some basic sanction system, communities are even able to manage public goods themselves, without heavy-handed government intervention. Welfare economists and political scientists therefore speak of public goods being a drama, rather than an outright tragedy. Legal scholarship has not fully engaged this problem. In this article, we explain why privacy has aspects of a public good, and we draw lessons from the theoretical and from the empirical literature on public goods for the policy discourse on privacy.