The Law and Economics of Privacy


Consumer welfare has been a north star of the Federal Trade Commission (FTC), providing an organizing principle for diverse issues under the Commission’s dual competition and consumer protection missions and, specifically, a uniform ground on which to examine the law and economics of privacy matters and the tradeoffs that privacy policies entail. This paper provides the first contemporary literature synthesis by former FTC staff that brings together the legal and economics literatures on privacy. Our observations are the following: (a) privacy is a complex subject, not a simple attribute of goods and services or a simple state of affairs; (b) privacy policies entail complex tradeoffs for and across individuals; (c) the economic literature finds diverse effects, both intended and unintended, of privacy policies, including on competition and innovation; (d) while there is diverse and growing evidence of the costs of privacy policies, countervailing benefits have been understudied and, as of yet, empirical evidence of such benefits remains slight; and (e) observed costs associated with omnibus policies suggest caution regarding one-size-fits-all regulation.