The Benefits and Costs of Online Privacy Legislation

Abstract

Many people are concerned that information about their private life is more readily available and more easily captured on the Internet as compared to offline technologies. Specific concerns include unwanted email, credit card fraud, identity theft, and harassment. This paper analyzes key issues surrounding the protection of online privacy. It makes three important contributions: First, it provides the most comprehensive assessment to date of the estimated benefits and costs of regulating online privacy. Second, it provides the most comprehensive evaluation of legislation and legislative proposals in the U.S. aimed at protecting online privacy. Finally, it offers some policy prescriptions for the regulation of online privacy and suggests areas for future research. After analyzing the current debate on online privacy and assessing the potential costs and benefits of proposed regulations, our specific recommendations concerning the government's involvement in protecting online privacy include the following: The government should fund research that evaluates the effectiveness of existing privacy legislation before considering new regulations. The government should not generally regulate matters of privacy differently based on whether an issue arises online or offline. The government should not require a Web site to provide notification of its privacy policy because the vast majority of commercial U.S.-based Web sites already do so. The government should distinguish between how it regulates the use and dissemination of highly sensitive information, such as certain health records or Social Security numbers, versus more general information, such as consumer name and purchasing habits. The government should not require companies to provide consumers broad access to the personal information that is collected online for marketing purposes because the benefits do not appear to be significant and the costs could be quite high. The government should make it easier for the public to obtain information on online privacy and the tools available for consumers to protect their own privacy. The message of this paper is not that online privacy should be unregulated, but rather that policy makers should think through their options carefully, weighing the likely costs and benefits of each proposal.