Much Ado About Notification

Abstract

Data security breaches have received considerable public attention of late, and have prompted several states to mandate that firms whose data may have been compromised to notify their customers of the security breaches. This study finds that the costs of a notification requirement are likely to be substantially higher than the benefits. Even for consumers whose data have been compromised, the probability of being a victim of fraud is so low - only 2 percent - that little action is justified. Overall, we estimate that the expected benefits of mandatory notification are very small - less than $10 per compromised individual.

Keywords: data security, data security breaches, notification, fraud, legislation, lenard, rubin, cost of security breaches, market responses, improved security, identity theft, costs of notification

JEL Classification: K4, K40, K42, K49, K39, K23, K10, K100