Truth on the Market

Academic commentary on law, business, economics and more

Privacy Interview

Posted by Paul H. Rubin on January 27, 2012

I was recently interview about privacy on the BBC Online Magazine by Kate Dailey.  Here is the interview:

26 January 2012 Last updated at 13:11 ET

Could Google’s data hoarding be good for you?

By Kate Dailey BBC News Magazine

Google’s announcement that is now tracking users’ web movements has upset privacy advocates. But consider what you get in return for the information.

With the news that Google is to merge data collected from its many platforms – including YouTube, Gmail and Blogger – privacy advocates say the company will have more information than it should. Even before this change, web users had too little control over their online information, they say.

“Your data is out there,” says Jeff Blevins, an associate professor of communications law and policy at Iowa State University.

“It’s really blind to us. We don’t know what information they have and how they’re using it, and we have no right to access it.”

Web companies use browsing behaviour to paint consumers into boxes, making assumptions about their identities and targeting ads at them. Sometimes users can opt out. But often they are tracked without even knowing it.

Risk and rewardBut one economist says concerns about privacy are misguided – and that having more online is better than having less.

Users are richly compensated for their personal information, says Paul Rubin, a professor of economics at Emory University in Atlanta. In exchange for it, he says, they receive a free and useful internet.

“It makes the internet work much better, in many dimensions.

“If you and I search on the same topic, we may have different interests, if the results are tailored to me and tailored to you, that’s a better experience.”

When the data is used to sell ads, the ads we get are tailored to things we might like, and the profits can work in our favour.

“Sure, Google makes some money, but they use that money to give away all kinds of stuff, like Gmail,” says Mr Rubin.

“My life is on Google,” he says, referring to the calendars, documents and other services Google provides. “It needs to be funded somehow.”

Avoiding fraud

Counterintuitively, having more information available online could better protect consumers from fraud, Mr Rubin says.

A consumer seeking a new credit agreement, for example, currently has to provide information found in the public record, such as current and previous addresses.

Thieves with only an incomplete set of information – say, your name and social security number – can often access those answers.

But with more information online, a clearer picture of who that social security number really belongs to emerges, making it easier for online verification systems to ask more relevant questions, such as recent purchase history.

“The other thing people worry about is ID theft and fraud, but with more information that’s available, it’s easy to verify someone’s identity,” he says.

The information companies collect does not form a personal dossier so much as a collection of data points and assumptions about each user based on their web history. It is kept separate from a name, face, or address.

And as Business Insider pointed out, those Google assumptions can often miss the mark – incorrectly classifying users based on the data available.

That is in part because only computers are handling the sensitive information collected online, Mr Rubin notes.

“People have a notion that if something is known about them somebody knows it,” he says. “In fact, there’s a huge amount of stuff that’s only known by computers.”

He says reputable companies do a good job of making sure that data stays on the servers and out of human reach.

A data stereotype of an individual’s online shopping behaviour can make it easier to flag when that behaviour is out of the ordinary, for instance.

‘No protections’

Privacy experts worry that the risks of having too much personal information online far exceed the potential rewards.

“At the moment in the US, there are almost no protections,” says Lorrie Cranor, associate professor of computer science and engineering and public policy at Carnegie Mellon University.

“It would be good to have some baselines established – certain types of data uses that can’t be done. To really make it illegal for companies to go and sell this info to your employer or your insurance company, for instance,” she says.

Social media records can be subpoenaed in legal cases, she said. In 2010, Google sacked an engineer accused of inappropriately accessing Gmail accounts to spy on people.

Currently, it is difficult to determine whether Europe’s strong privacy laws are being enforced, says Jonathan Mayer, fellow at the Center for Internet and Society at Stanford University.

He is part of the World Wide Web Consortium Tracking Protection Working Group, which is drafting rules for what data can be collected, and how, across the web.

“The harm for the moment does not seem to be some particular economic injury that people are out in the wild suffering, but the principal of ‘would you hand your web browsing to a stranger’,” he says.

When it comes to privacy protection, he says he would prefer to err on the side of caution.

“It doesn’t seem to me that we should have to wait for the very bad things that could happen before we let users take control of their data,” he says.

Posted in privacy | 2 Comments »

“Protecting” Consumers from the Truth About the Cost of Government

Posted by Thom Lambert on January 26, 2012

A new rule kicks in today requiring airlines to include all taxes and mandatory fees in their advertised fares.  The rule, part of a broader “passengers’ bill of rights”-type regulation promulgated by the Department of Transportation, is being sold as a proconsumer mandate:  It purportedly protects consumers from the sticker shock that results when they learn that the true consumer price for a flight, due to taxes and mandatory fees, is much higher than the advertised price.

But how consumer-friendly is this rule?  Won’t it be easier to raise taxes and fees when they aren’t presented as a line item, when consumers aren’t “startled” to see the exorbitant amount they’re paying for government services?  Value-added taxes (VATs), which tax the incremental value added at each stage of production and are generally included in the posted price for an item, have proven easier to raise than sales taxes, which are added at the register.  That’s because the latter are more visible so that increases are more likely to generate political opposition.  While VATs are common throughout Europe, they’re virtually non-existent in the United States, in part because we Americans have recognized the important role “tax sticker shock” plays in creating political accountability.

Consumer advocates, nevertheless, are lauding the new Department of Transportation rule.  They don’t seem to realize that higher taxes are bad for consumers and that taxes are more likely to rise when the government can hide them.  They also seem to care little about consumer sovereignty.  Don’t consumers have a right to know how much they’re paying to have scads of Homeland Security officers bark orders at them and gawk at their privates?

 

Posted in advertising, consumer protection, regulation, taxes | 2 Comments »

Privacy in Europe

Posted by Paul H. Rubin on January 24, 2012

The EU is apparently thinking of adopting common and highly restrictive privacy standards which would make use of information by firms much more difficult and would require, for example, that data be retained only as long as necessary.  This is touted as pro-consumer legislation.  However, the effects would be profoundly anti-consumer.  For one thing, ads would be much less targeted, and so consumers would get less valuable ads and would not learn as much about valuable prodcts and services aimed at their interests.  For another effect, fraud and identity theft would become more common as sellers could not use stored information to verify identity.  Finally, costs of doing buisness would increase, and so we would expect to see fewer innovations aimed at the European market, and some sellers might avoid that market entirely.

Posted in privacy | 3 Comments »

Call for Papers for the Haas-Sloan Conference on the Law & Economics of Organization

Posted by Josh Wright on January 23, 2012

Haas-Sloan Conference on 

The Law & Economics of Organization: New Challenges and Directions

Nov. 30-Dec. 1, 2012

The Walter A. Haas School of Business, with support from the Alfred P. Sloan Foundation, is issuing a call for original research papers to be presented at the Conference on The Law & Economics of Organization: New Challenges and Directions. The conference will be held at the Haas School of Business in Berkeley, CA, on Friday, November 30, and Saturday, December 1, 2012. A reception and dinner will follow a keynote address by Nobel Laureate Oliver Williamson on Friday.

The purpose of the conference is to take stock of recent advances in the analysis of economic organization and institutions inspired by the work of 2009 Nobel Laureate Oliver Williamson and to examine its implications for contemporary problems of organization and regulation. Empirical research and research informed by detailed industry and institutional knowledge is especially welcome.

Relevant topics include but are not limited to

  • the nature, role, and implications of bounded rationality and opportunism as they relate to issues of contracting and the institutional framework governing contractual relationships
  • government intervention in the market through regulation, antitrust policies, and direct investment (e.g., energy market and health care regulation; patent enforcement; concession contracts in alternative legal environments; government tax preferences for and subsidization of technologies and markets)
  • the operation and regulation of financial markets and institutions (e.g., the origins of and responses to the financial crisis; the role of credit rating agencies; financial and futures market organization and regulation)
  • legal and economic determinants of corporate organization, from joint ventures to the organization of corporate boards (e.g, labor restrictions and corporate organization; organization of high technology companies; regulation of corporate boards)

Paper proposals or, if available, completed papers should be submitted on line at http://www.bus.umich.edu/Conferences/Haas-Sloan-LEO-Conference by March 31, 2012. The deadline for completed papers is November 1, 2012. Selections will be made by the conference organizers, Professors Pablo Spiller (Berkeley), Scott Masten (Michigan), and Alan Schwartz (Yale). Conference papers will be published in a special issue of the Journal of Law, Economics, & Organization.

Posted in antitrust, behavioral economics, economics | Leave a Comment »

Stan Liebowitz on Piracy and Music Sales

Posted by Josh Wright on January 23, 2012

Stan Liebowitz (UT-Dallas) offers a characteristically thoughtful and provocative op-ed in the WSJ today commenting on SOPA and the Protect IP Act.  Here’s an excerpt:

You may have noticed last Wednesday’s blackout of Wikipedia or Google’s strange blindfolded-logo screen. These were attempts to kill the Protect IP Act and the Stop Online Piracy Act, proposed legislation intended to hinder piracy and counterfeiting. The laws now before Congress may not be perfect, and they can still be amended. But to do nothing and stay with the status quo is to keep our creative industries at risk by failing to enforce their property rights.

Critics of these proposed laws claim that they are unnecessary and will lead to frivolous claims, reduce innovation and stifle free speech. Those are gross exaggerations. The same critics have been making these claims about every previous attempt to rein in piracy, including the Digital Millennium Copyright Act that was called a draconian antipiracy measure at the time of its passage in 1998. As we all know, the DMCA did not kill the Internet, or even do any noticeable damage to freedom—or to pirates.

Scads of Internet pundits and bloggers have vehemently argued that piracy is really a sales-promoting activity—because it gives people a free sample that might lead to a purchase—or that any piracy problems have been due to a failure of industry to embrace the Internet. Yet these claims are little more than wishful thinking. Some reflect a hostility to commercial activities—think Occupy Wall Street, or self-interest. Others make “freedom” claims on behalf of sites that profit by helping individuals find pirate sites, makers of complementary hardware, or companies that benefit from Internet usage and collect revenues whether the material being accessed was legally obtained or not.

In my examination of peer-reviewed studies, the great majority have results that conform to common sense: Piracy harms copyright owners. I was also somewhat surprised to discover that the typical finding of such academic studies was that the entire enormous decline that has occurred is due to piracy.

Contrary to an often-repeated myth, providing consumers with convenient downloads at reasonable prices, as iTunes did, does not appear to have ameliorated piracy at all. The sales decline after iTunes exploded on the scene was about the same as the decline before iTunes existed. Apparently it really is difficult to compete with free. Is that really such a surprise?

Do check out the whole thing.

 

 

Posted in business, copyright, economics, intellectual property, music, technology | Leave a Comment »

What if the Government Ordered the Human Rights Campaign to Cover Conversion Therapy for Gays?

Posted by Thom Lambert on January 23, 2012

A thought experiment:

It’s late January 2016.  Newt Gingrich is President.  The House of Representatives is solidly Republican, and there’s a slight Republican majority in the Senate.  Because Republicans lack a filibuster-proof majority in the Senate, the Affordable Care Act (a.k.a. Obamacare) remains on the books.  (The reconciliation process, which allowed the law to be enacted without supermajority support in the Senate, could not be used to repeal the law.)  The Act continues to require employer-provided insurance to provide full coverage for all preventive care measures.

Secretary Rick Santorum of the Department of Health and Human Services has determined that conversion therapy for gay males will help prevent all sorts of costly health problems.  HIV and related health problems, it seems, are extremely costly to treat and are far more common among gay men than among straight men.  HHS has determined that the most modern conversion therapies can cheaply and successfully alter sexual orientation or, at a minimum, reduce homosexual impulses so that they can be managed by homosexually oriented patients who would prefer not to engage in homosexual activity.

President Gingrich and Secretary Santorum have therefore mandated that employer-provided health insurance policies cover gay conversion therapies.  Claiming to be sensitive to the concerns of gay groups, they have included a narrow exemption for employers who don’t employ or serve significant numbers of straight people.  In reality, though, none of the major gay and lesbian advocacy groups (e.g., the Human Rights Campaign, GLAAD) or publishing organizations (e.g., The Advocate, OUT Magazine) could qualify for this exemption because all employ a great many gay-affirming straight people and include outreach to heterosexuals as one of their objectives.     

Can you imagine the howls from the New York Times, the television networks, and basically every other political commentator in America?  Andrew Sullivan might just explode.  And rightly so.  Forcing gay groups to pay for a procedure that so deeply offends their core principles would be beyond the pale in a liberal society that respects personal conscience and the right of individuals to associate in groups that share their values – a right that can exist only if groups are allowed to express those values and, to the extent they aren’t hurting others, order their affairs according to them.  

So why do President Obama and HHS Secretary Kathleen Sebelius get a pass when they order Catholic schools, hospitals, and social service agencies to cover birth control, sterilization, and the morning after pill?  The ridiculous “exemption” they created shows how little they know about what churches actually do:  Christ’s apostles themselves wouldn’t have qualified because they, like any church worth its salt, served multitudes of nonbelievers.  Providing an extra year to come into compliance does nothing to alleviate the fundamental problem (Is the doctrinal conflict going to disappear next year?) and is a transparent attempt to deflect media attention until after the 2012 election.  There are lots of Catholics in Ohio and Pennsylvania, after all.

One might say that my analogy fails because the science doesn’t show that gay conversion therapy actually works, and it therefore wouldn’t reduce total health care costs.  But that’s beside the point.  Even if there were a therapy that could cheaply and effectively make gay people straight (i.e., a pill or a quick surgical procedure) it would still be inappropriate to force groups whose central objective is to affirm gay people and fight anti-gay bias to provide coverage for such a therapy.

My point is not to defend the Catholic Church’s views on birth control (with which I disagree), to defend gay conversion therapy (which I think is a harmful crock), or to question the mission of gay rights organizations.  Instead, I mean to point out that governments in liberal societies do not force individuals or voluntary associations to violate their consciences where their conscience-following does not violate the rights of others.  Yet another example of Obamacare’s heavy hand.

Posted in free to choose, health care reform debate, musings, politics, regulation | 5 Comments »

Ideoblog Archives Available

Posted by Josh Wright on January 22, 2012

I’ve received quite a few emails from TOTM and Ideoblog readers on this topic and so I want to highlight for our readers that we have Larry’s Ideoblog archives available at the link featured across the top bar under the Truth on the Market banner (click here).  They are also available on the left hand side of the blog by topic.  It will not surprise Larry’s friends and colleagues that this double-feature of Ideoblog archives was a one of Larry’s conditions for the Ideoblog / TOTM merger.

Posted in blogging, larry ribstein rip | Leave a Comment »

The Republican Primary

Posted by Paul H. Rubin on January 22, 2012

I have been following the Republican primary on Intrade, the betting market site.  In the last few days, the probability  Mitt Romney winning the nomination has gone down by about 10%, from about 80% to about 70%. The probability of Newt Gingrich winning the nomination has gone from virtually 0 to about 15%  At the same time, the probability of President Obama being reelected has increased, from about 51% to about 56%.  This is telling us something about the market’s perception of the relative strength of Romney versus Gingrich as a candidate.

Posted in politics | 4 Comments »

SOPA, Incentives and Efficiency

Posted by Paul H. Rubin on January 22, 2012

The fight over SOPA is about the ownership of intellectual property.  Rights to intellectual property have two effects.  The benefits of intellectual property are the incentives for creation.  The costs are that after some work is created any price above marginal cost (which is often zero for digital property) will discourage valuable use.

Every piece of intellectual property than now exists was created with the incentives that were in place when it was created.  No change in intellectual property rights can have any effect on existing works.  Therefore, any change in property rights should be entirely prospective.  That is, any change in property rights should effect only works copyrighted after the passage of the legislation.

Of course, there are huge rents associated with the ownership of existing rights, and fights over these rents will  continue.  But we should recognize that these fights are over rents — payments which have no incentive effects.  If our goal is efficiency, we should stop wasting resources on these fights and start from now.

 

Posted in copyright, intellectual property, truth on the market | 3 Comments »

A “Reasonable Profits Board”? If Only It Were From the Onion…

Posted by Josh Wright on January 19, 2012

A Congressional Bill proposing a “Reasonable Profits Board” so that profits on the sale of oil and gas in excess of what is “reasonable” can be subjected to a windfall tax.  A brief description:

According to the bill, a windfall tax of 50 percent would be applied when the sale of oil or gas leads to a profit of between 100 percent and 102 percent of a reasonable profit. The windfall tax would jump to 75 percent when the profit is between 102 and 105 percent of a reasonable profit, and above that, the windfall tax would be 100 percent. The bill also specifies that the oil-and-gas companies, as the seller, would have to pay this tax.

We have a long archives of posts here at TOTM on a variety of forms of price gouging legislation in oil and gas.   Most recently, in discussing a White House Task Force aimed to detect price gouging and usurping jurisdiction from the Federal Trade Commission, I wrote:

One need only read the FTC’s 222 page report on gasoline prices post-Katrina and Rita to appreciate the Commission’s expertise in this area.  But perhaps most importantly, and undoubtedly related to the appointment of a working group outside the Commission, is that the Commission understands the relevant economics.  Indeed, as I noted just recently, then Bureau of Economics Director Michael Salinger gets it right when he observed  “as unpleasant as high-priced gasoline is, running out will be even worse.”  Further, it was the Commission Report that found not only scant evidence of what might be described as “gouging” — but did find examples of gas stations that shut down rather than risk a suit under a state price gouging law.  “Price Gouging Helps Consumers” doesn’t make for much of an election slogan, so perhaps this is all to be expected.  But nobody should be fooled into believing that enforcement of existing state price gouging laws, or a new federal task force devoted investigate “price gouging,” are going to make consumers better off.

The criticisms against price gouging laws become even stronger against a “Reasonable Profits Board,” which is even more blatantly political, even more likely to harm consumers, and even more likely to waste social resources than enforcement of state price gouging laws.

 

Posted in economics, federal trade commission | 1 Comment »

 
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