In Defense of Data: Information and the Costs of Privacy

The commercial use of information on the Internet has produced substantial benefits for consumers. But, as the use of information online has increased, so have concerns about privacy. This paper discusses how the use of individuals' information for commercial purposes affects consumers, and the implications of restricting information availability in the interest of privacy. It lays out a range of information benefits to consumers of the commercial use of online information, including targeted services, cost reductions through targeted advertising, efficient search engines, differential pricing and re-use of information. It argues that firms have incentives to satisfy customers' privacy preferences and that restrictions in the legitimate use of information may not lead to further privacy benefits. It discusses a number of policy proposals geared at maximizing privacy, arguing that benefits to consumers would be outweighed by the information costs.