Privacy Costs and Personal Data Protection: Economic and Legal Perspectives

Abstract

We analyze personal data protection laws in the United States through the lenses of the economic theories of ex ante safety regulation, ex post liability and information disclosure. Specifically, we consider and contrast how legal and economic theories interpret privacy costs and the remedies to those costs. First, we introduce the general economic theories of ex ante regulation, ex post liability and information disclosure. Then, we present their causal relationships and show how they attempt to reduce possible privacy harms caused by a firm’s activity. We then scrutinize their impact by contrasting legal and economic doctrines. Finally, we provide deeper economic analysis of the three legal mechanisms and highlight conditions under which they may become socially inefficient.

Keywords: information disclosure, security breach notification, data breaches, identity theft, privacy costs, ex ante safety regulation, ex post liability

JEL Classification: D18, K13, K20, L51, L86