Privatising personal identity – part two – Who Owns Personal Data

Eben WilsonPosted by

In the second of a series of short articles, political economist Eben Wilson (St Andrews) explores the connection between law and economics in the world of big data. The role of property rights and their tradeability is seen to be a key factor on protecting consumer identity and privacy.  

Who Owns Personal Data

In my first article I explained how value for the tech companies controlling social media and other digital platforms is created by access to our personal data. This can then be used to bombard us frequently and, through time, more accurately where our habits, traits and preferences can be identified – a process that is being seen by many as unacceptable intrusive.

Regulating accessibility to personal data through government action is the usual response to consumer anxieties about intrusive marketing. However, this approach does not fit well with economic principles. Regulation has adverse outcomes. It squashes enterprise and innovation, it removes value by increasing overheads and depressing tradeable fungibility, it also tends to distort market entry, favouring large players who can afford higher costs, and who then protect markets for their own gain.

GDPR compliance

I detect also in recent consumer reaction to the flurry of GDPR compliance emails and cookie clicks, plus additional caution in dealings between commerce and professionals and their clients, that regulation has also crossed a boundary into becoming intrusive in itself.  This is a common outcome of state-originated regulation; when risk aversion of the bureaucracy begins to trump what consumers would see as common sense.  It’s very costly and affects productivity.

Political economists describe these phenomena as “unintended consequences”. They should never be under-estimated; they lead to concentrations of commercial and political power and they make us all poorer, with the less well-off always affected most.  This last sentence may appear to some to be a political remark; I refer you to the Theory of Moral Sentiments by Adam Smith in my defence; in Scotland we have known about these enlightened insights for many a year; even if in most countries they have been ignored or forgotten across the regulating body politic and bureaucracy.

Asymmetric information about the value of the data

A contemporary economist will often say that there is asymmetric information about the value of the data asset.  (Confusingly in this instance the asset is the information itself.)  Consumers do not have control over what has become an asset and, being atomised, they do not see it as such because they do not appreciate its value in aggregate as the tech companies do.

That does not help create a properly functioning market in the access to our identity.

There is an important economic principle here. All markets involve a degree of asymmetry in knowledge. This allows us to trade; lawyers help businesses or householders because they know the law and their clients do not.  In Adam Smith’s terms, asymmetric information is the specialization and division of knowledge in society as applied to economic trading.

But too much asymmetry, especially where one party to an exchange knows very little and obtains no priced payment for their participation, is not a market transaction; it’s more akin to monopolistic coercion.

Solution to information asymmetry

Economists have a solution to information asymmetry. Step one is to ensure that property rights are properly allocated and tradeable (fungible). Step two is to ensure that prices are then free to adjust. Step three is to allow plural players to enter the trading marketplace. A slight caution here; to political economists, prices also include non-monetary values in the form of personal costs or gains; like reputation, happiness, fear or discomfort. All choices are priced in our world.

These steps can be delineated in jurisprudent terms combining good law and economic principle. In short, good law is needed that defines a new property. To achieve optimum outcomes one has to find institutional forms that use statute to support the Rule of Law, and design accompanying legislation that defines how that law is expressed in this particular arena of human exchange.

I will outline how that can be done in my next piece.

Part One – Privatising personal identity – The Value of Data

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