Polycentric Privacy Governance in the Digital Age


Understanding how institutions, technology and social welfare coevolve is essential to understanding economic and social development, and the evolution of privacy alongside institutions and technology in the modern era sheds valuable light on this question. Privacy has both private individual value and public social value, even as privacy rights tradeoff directly with the ability of the government to enforce the law. We deem this inherent defect in the government’s incentives to protect privacy the “institutional privacy dilemma,” a defect which results in a greater role for technological innovation and individual choice to preserve rights to privacy alongside the public institutions that both protect and infringe it. In the digital age, technological change has led to greater private use of encryption to preserve individuals and organizations’ rights to privacy. Yet, this technology itself poses a challenge for law enforcement, for encryption shields those with innocent and criminal motives alike. Unsurprisingly then, governments have sought to weaken or eliminate encryption in the face of the privacy dilemma, with an emerging set of technological solutions preserving private actors’ rights to a measure of privacy while applying zero-knowledge proofs to simultaneously satisfy legitimate enforcement objectives. Our case study of applications of zero-knowledge proofs and privacy institutions illuminates how a coevolving blend of polycentric forces governs social welfare in practice and emphasizes how individual demand for rights the government is especially likely to infringe plays an essential governance role.