This note provides an economic approach to consumer privacy and data security based on the extensive economic literature on how information flows, and is used, in the marketplace. The authors apply that approach to consumer protection in privacy and data security, as a step toward the ultimate goal of facilitating well-grounded cost-benefit analysis of future policy and law enforcement action in this area.
Over the past two decades, the FTC has led the governmental effort to protect the integrity of consumer privacy choices in the market. This note attempts to describe the economic basis for that work in one coherent piece. Given the scope of the topic, this note is only a first step in providing clarity on the economic perspective on consumer protection in this area. The authors hope the note will improve future actions in privacy and data security. As a matter of scope, this note does not discuss the potential implications of privacy and data security for antitrust or competition. Nor does it discuss data access and data use beyond domestic commerce.
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