The Role of Institutions and Policy in Balancing Privacy and Information Sharing in the Digital Economy

Today’s online economy relies on exchanges of data for services. Online service providers collect personal data to earn revenue from targeted advertising. Many users of online services are concerned that their data might be used in ways contrary to their interests, interfering with their privacy. This research focuses on online data collection, processing, disclosure, and use by private companies, and it considers both costs and benefits. Privacy policy in the United States places too much emphasis on notice and consent, which raises transaction costs without doing enough to protect online users from the risks associated with disclosing personal data online. More stringent privacy regulation similar to the European Union’s General Data Protection Regulation would impose substantial costs on firms, making it harder for small firms to compete against dominant platforms, such as Google and Facebook. This paper argues for permissive privacy policy that does not discourage collection and processing of personal information for online advertising. A better approach is continued case-by-case FTC regulation combined with expanded legal liability of data controllers for data practices that subject a user to specific and significant harm or risk of harm. This approach could be combined with fiduciary responsibilities for firms that collect large amounts of personal information