David Siffert Thought Paper 2a

Solveig Singleton discusses the “creation” of a property right for personal information. She claims that it is somehow a bad idea to “create” this privacy right and that it is a free speech problem of some sort. This whole argument is strange, because the property right already exists. Under her proposal, the right would be allocated to database managers. Someone could offer to pay a database owner not to transfer his/her information, and such a contract would be valid in a court of law. Especially bizarre is the mocking comparison to phone books—a perfect case where the property right is allocated to individuals to opt-out.

The question is where to allocate the property right. Unless there is a Constitutional mandate to allocate the right to one party or the other, we should choose an efficient allocation. I will not discuss the free speech Constitutional question here—suffice to say that the information being received in a financial transaction and the information being distributed in another financial transaction would make the issue distinguishable from gossip and regulable. I will focus on the efficiency question.

The first step is Coase’s Theorem: Transaction costs aside, the allocation of the property right does not matter. Clearly transaction costs exist, so we turn to Calabresi, who coherently explained that we ought, if seeking efficiency, allocate the property right in order to minimize transaction costs of negotiation. Alternatively, if seeking distributive goals, we could allocate the property right to the worse-off party.

In this case, both reasons point to allocating the right away from the database owner. Given that the data we are discussing has presumably been collected during an online sale of goods, it is incredibly easy for the seller, should he/she so desire, to include a provision in the terms of service that binds the purchaser to allow resale of information. Those who value privacy will not shop from online merchants who insist on such a provision. They will shop where privacy is ensured, presumably at a cost. Simply, the market will solve. If we allocated the property right to the seller/database owner, it is much more difficult for a purchaser to engage in independent negotiation to repurchase his/her privacy. Given the one-sided transaction costs, the efficient default allocation is to the online shopper.

Similarly, distributive goals lead us to allocate property rights to consumers rather than producers. Producers are more likely to have more money, and diminishing-marginal-returns-to-the-dollar indicate that a worse-off person will value a dollar more than a better-off person. As such, the valuable property right should be allocated to the consumer, and the producer will have to “purchase” it away as a condition of buying products. Presumably consumers that value their privacy will demand lower priced goods in exchange for release of their information.

Note that many of the non-transaction-based information issues identified in Chapter 9 will have possibly the opposite analysis in terms of both transaction cost minimization and Constitutional freedom of speech issues.