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Article Excerpt
Privacy is a concern for all major stakeholders in modern society, and technology to erode privacy continually emerges. Studies show that individuals are concerned about database privacy; yet, they seldom make privacy a salient attribute when deciding among competing alternatives. Although privacy policies are present on many Web sites, Web users rarely bother to read them. Professor Nehf explores why this is so, identifying rational reasons why Web users do not shop for privacy and discussing the implications for the expanding market for consumer information. Unless privacy becomes a salient attribute influencing consumer choice, Web site operators will continue to obtain and use more personal information than Web users would choose to provide in a more transparent exchange. In a responding commentary, Professors Pitt and Watson use an ecosystem approach that explores the multiple dimensions of privacy. Investigating the interactions between the three major players--citizen/consumer/investor, government, and corporation--they identify reasons for the failure of market mechanisms to arise to protect privacy.
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Protecting consumer privacy in the United States is largely the responsibility of individuals who are expected to guard their personal information and take steps to minimize the risk that it will be used in an unauthorized way. Although federal (and a few state) laws restrict sharing some kinds of personal information--in health-related fields (Health Insurance Portability and Accountability Act (1996 (1)), the financial services industry (Gramm-Leach-Bliley Act (2)), and a handful of other economic sectors such as video rentals, children's Web sites, and telecom industries (3)--the restrictions are riddled with exceptions. In most aspects of daily life, individuals are expected to take steps to protect their own privacy interests (Solove 2001). This is particularly true for consumer transactions on the Internet, most of which are not subject to state or federal privacy laws.
The self-policing model would be more effective if a market for information privacy were conducive to individuals shopping their privacy preferences online. This paper summarizes many of the reasons privacy shopping seldom occurs.
On the surface, market incentives seem to be present. Many online businesses purport to collect only a minimum of customer data and to keep it secure. On the consumer side, many individuals are concerned about identity theft or the embarrassing release of private facts about them (Hoar 2001; Norberg, Home, and Home 2007; Saunders and Zucker 1999) and they give as little personal information as possible in online transactions (Sheehan and Hoy 1999).
For most consumers and businesses, however, privacy-enhancing market incentives are weak, and the conditions for market failure are strong. Consumers do not shop for privacy, and there are several reasons why.
AGGREGATION AND EASY TRANSFER OF DATA
A system that relies on individuals to police their privacy rights presumes that individuals can value privacy rights meaningfully. If people do not know what information is being collected, how it could be used, and what harm might result from its collection and use, they have no way to judge how much it is worth to them (in time, money, or other trade-offs). To make an informed choice about whether and how to share personal information, and whether to make an effort to protect it, people need to know what is at stake.
Most people have no idea what information a Web site collects and how it will be used. In rare instances, a user will take time to read a Web site's privacy policy, but even then the information is only marginally helpful. Most privacy policies are obtuse and noncommittal (LaRose and Rifon 2007; Milne, Culnan, and Greene 2006), but even a straightforward policy can be deceiving. For example, many privacy policies state that the site uses cookies and other means to obtain customer information and that it shares customer data only with affiliated companies and firms that have entered into joint marketing agreements with the site host. A customer might decide to use the site, especially if the site is only requesting a few simple facts (e.g., name and postal or e-mail address). Yet, affiliated companies and joint marketers could be numerous and involved in entirely different lines of business, each with its own bits of information about the customer in its own database already. Each likely will have its own set of information practices, unknowable to the customer. Because even diligent Web site users lack the information necessary to evaluate the risks of information sharing, users rarely can evaluate the risk of a proposed information exchange (Varian 1992).
SIGNALING MECHANISMS ARE NOT YET EFFECTIVE
The information asymmetry might be ameliorated by signaling mechanisms that supplement an individual's knowledge. Voluntary privacy seals, trust marks, and similar indicators could signal strong privacy practices and thereby help the privacy market work better (Franz 2001; Miyazaki and Krishnamurthy 2002; Rifon, LaRose, and Choi 2005). Unfortunately, in online interactions the current signals given by such seals are poor (LaRose and Rifon 2007). At present, the scope of mark assurance is narrower than one might expect. The most popular marks, at best, ensure only that the business discloses a privacy policy with minimal protection of consumer interests and that the mark issuer has no knowledge that the business is not following its policy as stated. Licensors of marks do not require that subscribers limit or reduce the amount of information they collect in any meaningful way nor do they dictate how collected information can be shared and with whom. Mark issuers also do not perform regular and rigorous audits on their clients to ensure that the site's policy is being honored (Pippin 1999). Thus, a nonmarking business might not collect or share any information at all, whereas a trust mark subscriber might be collecting data and selling information with numerous outside entities (Miyazaki and Krishnamurthy 2002; Rifon, LaRose, and Choi 2005).
Moreover, market incentives are not driving Web site operators to tough-minded trust mark licensors (Miyazaki and Krishnamurthy 2002). Trust marks allow Web sites to appear concerned about privacy, but they do not provide restrictions that are specific, limiting, and enforceable.
ACCOUNTABILITY PROBLEMS INSULATE PRIVACY VIOLATORS
For individuals to protect their privacy interests, they must be able to identify the person who broke a law, breached a privacy policy, or allowed access to its database because of lax security procedures. Businesses that collect data must fear that they will be exposed and held accountable if they do something wrong.
There are two fundamental accountability problems. First, individuals seldom know when a privacy breach has occurred. The vast majority of data collection--lawful and unlawful--occurs outside of public view (Bellotti 1997). Although on occasion a breach of privacy norms results in media exposure, far more frequently, breaches remain hidden for months, years, or indefinitely.
Second, even if an injury or breach is detected, individuals may find it impossible to trace the problem to a particular cause or source. With personal information residing in countless databases, often there will be no way to locate the entity that caused a particular problem, sold the data, or permitted a hack or leak that ultimately caused someone to be harmed. Even with a noticeable harm such as identity theft, it may be impossible to learn how the thief obtained the personal information. Tracing the injury to the originating source often will be difficult or impossible.
PRIVACY MUST BE SALIENT TO CONSUMERS
For individuals to police their privacy preferences, they must incorporate privacy concerns into their decisions whether to share personal information. If privacy is not salient, businesses that wish to collect and share data will offer weaker privacy terms than consumers prefer because they pay little or no market penalty for their practices.
Research on the saliency of privacy is conflicting. On the one hand, behavioral economics studies suggest that consumers are concerned about information privacy. Consumers in controlled studies have been asked to make decisions that reveal their privacy preferences in a way that places the question firmly into the decision-making process. When this happens, several conclusions emerge:
First, consumers are generally aware of privacy issues, and they are concerned about guarding their personal information (Dommeyer and Gross 2003; Hann et al. 2003).
Second, although consumers value their information, they also are willing to trade information for other benefits. Consumers who are aware of the value of their information will ask for rewards in exchange for disclosure, suggesting that consumers can place a value on personal information, and data can be elicited through monetary and other trade-offs (Caudill and Murphy 2000; LaRose and Rifon 2007; Olivero and Lunt 2004; Sheehan and Hoy 2000).
Third, since many consumers assume the information will be sold to third parties, an increasing number tend to disclose only those bits of information that are not perceived to be particularly risky or too valuable to risk trading without high rewards in exchange (Olivero and Lunt 2004; Sheehan and Hoy 2000).
Fourth, educated, experienced, and knowledgeable consumers tend to be more concerned and take more precautions to protect their personal information. High levels of technical knowledge are positively correlated with privacy concerns (Olivero and Lunt 2004). Better educated and more affluent computer users are more likely to refuse to share personal information online (Equifax-Harris' (1995) Mid-Decade Consumer Privacy Survey; Milne and Rohm 2000; Phelps, Nowak, and Ferrell 2000). More savvy online consumers may even provide false information about themselves in an effort to remain anonymous (Milne 2000).
Fifth, perceived risk is reduced, and more personal information shared, when consumers have a feeling...
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