A Primer on the Economics of Privacy

Your name is for sale. You ought to decide who to.

Eyes wide open: Today’s post was created in partnership with DeleteMe. It includes my analysis of market failure when the good we’re talking about is information about you. I believe every word of what follows, but it’s important to know that DeleteMe’s an industry player who profits when you buy their solution.

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Your inbox is so full you can’t find the messages that matter. When you get home, your mailbox is groaning with the weight of a thousand unwanted catalogs. And over dinner, you can’t get any peace as your phone rings with recorded messages offering you great deals or great candidates.

At first blush, you might blame the spammers and scammers for this mess. And they are bad guys. But at a deeper level, it’s all economics.

My favorite starting point for thinking about this is a simple piece called “Economic Aspects of Personal Privacy.” It was written in 1996 — at the dawn of the internet age in 1996 — by Hal Varian, an economics professor who went on to become Google’s Chief Economist. It’s a lovely example of how far you can get with a few simple economic principles.

It’s a basic three-step argument.

Step #1: Defining privacy (it’s not secrecy). We talk about privacy as if it means hiding things, but that can’t be right — we hand over information about ourselves constantly. I want my airline to know I’m a pescatarian.

What we care about isn’t whether information about us exists, it’s how it gets used. I’m fine with my dentist having my phone number. Less fine when a Nigerian prince calls me to discuss a Florida real estate opportunity.

So the thing being traded here isn’t information. It’s use rights over information.

When it comes to data privacy, we care less about whether information about us exists, and more about how it’s used. Photo by Tobias Tullius on Unsplash

Step #2: So give people the property right. Assign people ownership over how information about them gets used. This is particularly important for secondary use. It’s obvious when I sign up for my improv class that I want them to be able to email if class is cancelled. But I want control after that.

Licensing your song to Spotify means they can stream it to millions of listeners, but nothing else. If a company wants to make your song the jingle in a dog food commercial, they’ll need a different license. So does selling sheet music of your composition. Same object — my song, your data — sold at different prices in different markets for different uses.

Just as Spotify can’t pass along my song to a dog food advertiser, my improv coach shouldn’t be able to sell my email to a political campaign. (He hasn’t.)

Step #3: Analyze and address market failures. Unfortunately none of this quite works out the way you might hope, because of transaction costs. A song has one owner and a manageable number of licensees. Your address has one owner — you — but tens of thousands of potential counterparties, none of whom will pay enough to make the negotiation worth your morning.

And information is nonrival: copying it costs nothing, so once someone has your address, it’s hard to stop them distributing it.

Those transaction costs mean there’s no functioning market in which you can sell the right to mail you catalogues, call your phone, or barrage your inbox.

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What grows in a missing market

Enter data brokers. I’m talking here about “people search websites” — Whitepages, Spokeo, BeenVerified. If you’ve ever tried to look up your ex-girlfriend from high school, you’ve found these folks. There’s dozens of companies who just grab people’s names, addresses, email — including your abandoned @hotmail address — and roll them up into a database. They sell any details they can get to anyone who’ll pay.

Notice who isn’t in that transaction. There’s a buyer, a seller. But no-one asks you, pays you, or consults you.

The result is an externality you’re probably living with right now: Spam, scams, harassment, doxxing, and overflowing inboxes. Americans field more than 4 billion robocalls and 19 billion spam texts a month. Data brokers are only one part of the machine, but they’re the part that means that it’s your mailbox that gets targeted.

Americans field more than 4 billion robocalls and 19 billion spam texts a month. Photo by Hannes Johnson on Unsplash

Here’s the problem: Sorting pointless mail, dealing with spam, and dinner-time phone annoyances cost the annoyer nothing. And it’s all because we don’t have a functioning market where you get to decide who to supply your details to, and for what purposes.

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So what can you do when others are using your data?

Ask them to stop. You’re legally entitled to demand removal, and they’re supposed to comply. But there are hundreds of these sites, and they continuously rescan public records and rebuild — nothing stops your profile from reappearing next quarter. The right is nominally yours and practically theirs, because exercising it takes you a huge number of small, individually-not-worth-it actions. Transaction costs destroy the logic of this solution.

If you’re in California, use DROP. The state’s DELETE Act built a single request that propagates to every registered broker. You’ve been able to file since January, and starting August 1, brokers must check it every 45 days or face $200 per consumer per day. It’s free — and partial: one state, registered brokers only. This is what happens when governments take consumer interest seriously. Sadly, that’s rare.

Or hire an agent. Varian’s framework predicts that when individual bargaining is too costly, someone figures out how to provide bargaining services at scale. Songwriters don’t negotiate with every radio station; a collecting society does it for them. Just as thousands of songwriters need their rights negotiated, so too do millions of us who have addresses and phone numbers and private info.

And that brings me back to the sponsor of today’s post, DeleteMe. It scans hundreds of broker databases for profiles matching your information, files removal requests on your behalf, tracks each one until the listing is gone, and repeats the process if your info pops back up again (it often does).

It’s not the only operator in this space, but I use these guys because they were ranked #1 by The Wirecutter.

This is the market stepping in where legislation fails. And it works: A few clicks and a few bucks later, and they sort it all out for you.

The part of me that’s being paid by DeleteMe might end the post here, but I don’t do partial truths.

Here’s the uncomfortable bit: Notice which way the money flows. Varian imagined an agent who’d license your data out and collect on your behalf. Instead you pay companies like DeleteMe to claw your data back.

The economic lesson: When bargaining is costly, whoever holds the entitlement first tends to keep it. And data brokers just grabbed your data without really asking. They’ve got it, and you’re left to figure out how to get it back.

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Here’s the sponsorship bit: It’s paid for, but sincere. If you’re not okay with your personally identifiable information being sold online to anyone with a credit card, you should check out what DeleteMe has to offer.

If you decide their service is worth it, you can go to joindeleteme.com/Wolfers, and use promo code WOLFERS at checkout to get 20% off any DeleteMe consumer plan.