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Research Roundup 5: It’s a Mad Mad Mad Mad Mad Mad World

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That’s two extra ‘Mads’ compared to the classic movie. Each article seemed deserving of its own bit of madness, illustrating the nature of our mad world. Is privacy now just an illusion? Would you be able to recognize a school if you saw it? Just because you bought something, does that mean you own it? Does our nation’s drone policy fight terrorism or cause it? And what is the relationship between our lives in social media and the real world? This isn’t the Twilight Zone or Black Mirror: it’s just the mad world we live in.

 

The Economics of Privacy

Homeschooling, Virtual Learning, and Eroding the Public/Private Binary

Exhaustion of Digital Goods: An Economic Perspective

The Drone Paradox: Fighting Terrorism with Mechanized Terror

Echo Chambers on Facebook

Images that Matter: Online Protests and the Mobilizing Role of Pictures

 

As always, the views expressed in these research papers do not necessarily reflect our own.

 

The Economics of Privacy

Acquisti, Alessandro and Taylor, Curtis R. and Wagman, Liad, The Economics of Privacy (March 8, 2016). Journal of Economic Literature, Vol. 52, No. 2, 2016; Sloan Foundation Economics Research Paper No. 2580411.

In an article in the Journal of Economic Literature, Acquisti, Taylor, and Wagman survey the privacy literature covering: initial research on the topic (1970-1980, what the authors refer to as “the first wave”); consumer tracking; privacy policies; regulation as it applies to medicine and insurance and credit; telemarketing; spam; identity theft; and anonymity.

Initial research: Protecting privacy can create marketplace inefficiencies, since potentially relevant information is being withheld. In general, rational people are likely to hide negative traits and exaggerate positive ones, which could lead to firms in industries like loans and credit making poor decisions. As a result, firms have an incentive to collect more information than they would otherwise need. That said, control of one’s own information helps limit negative externalities that might result, even if over-protecting information comes at the expense of possible gains, such as targeted advertising.

Consumer tracking: Firms can gain a competitive advantage by tracking consumers online, thereby helping to reveal their preferences. A firm has an incentive to discount its products for consumers who would prefer their competitor’s product, for instance. As a result, tracking consumer behavior can help increase market competition. Firms must exercise caution in choosing how to take advantage of targeted tracking, though, as intrusive marketing will cause consumers to opt out, creating a prisoner’s dilemma: the more consumers who opt out of targeted ads, the more price competition relaxes as market information is not as widely distributed.

Privacy Policies: The authors find that the literature overwhelmingly suggests that it is in companies’ interests, especially firms with entrenched market power, to maintain strong privacy policies for their users. As long as consumers stay informed about these policies, regulation generally won’t be needed.

Privacy regulation: Over-regulation has the potential to harm e-commerce, although research is inconclusive. In medicine, overly strict privacy regulations may have contributed to low adoption rates for electronic medical records. In the lending and insurance fields, data-protection could reduce access to credit since lenders would have less information and want to protect their investments. The authors find that generally, the more information insurers and lenders have about their applicants, the more welfare increases.

Telemarketing, spam, and identity theft: In 2009, spam accounted for as much as $130 billion in lost productivity. Consumers will pay, as much as $100 per year per household for do-not-call style privacy, according to a 2010 study. On the one hand, data-breach disclosure laws have a negative effect on identity theft (decrease of 2%), and positive externalities such as decreasing the average size of loss and improving firms’ security. On the other hand, while online identity theft is also on the rise, some argue that the gains from having more information available, like access to credit, outweigh the risks of identity theft.

Anonymity: Recent surveys have found that Americans do not want to be tracked and would theoretically pay to ensure they are not tracked regarding their purchases. One study found that consumer privacy concerns were responsible for $18 billion in lost sales in 2002. On the other hand, targeted advertising allows many internet services consumers value to remain ‘free.’

 

 

AUTHOR WRITTEN ABSTRACTS:

The Economics of Privacy

Acquisti, Alessandro and Taylor, Curtis R. and Wagman, Liad, The Economics of Privacy (March 8, 2016). Journal of Economic Literature, Vol. 52, No. 2, 2016; Sloan Foundation Economics Research Paper No. 2580411.

This article summarizes and draws connections among diverse streams of theoretical and empirical research on the economics of privacy. We focus on the economic value and consequences of protecting and disclosing personal information, and on consumers’ understanding and decisions regarding the trade-offs associated with the privacy and the sharing of personal data. We highlight how the economic analysis of privacy evolved over time, as advancements in information technology raised increasingly nuanced and complex issues associated with the protection and sharing of personal information. We find and highlight three themes that connect diverse insights from the literature. First, characterizing a single unifying economic theory of privacy is hard, because privacy issues of economic relevance arise in widely diverse contexts. Second, there are theoretical and empirical situations where the protection of privacy can both enhance, and detract from, individual and societal welfare. Third, in digital economies, consumers’ ability to make informed decisions about their privacy is severely hindered, because consumers are often in a position of imperfect or asymmetric information regarding when their data is collected, for what purposes, and with what consequences. We conclude the article by highlighting some of the ongoing issues in the privacy debate of interest to economists.

 

Homeschooling, Virtual Learning, and Eroding the Public/Private Binary

Saiger, Aaron J., Homeschooling, Virtual Learning, and the Eroding Public/Private Binary (June 30, 2016). 10 J School Choice_(2016); Fordham Law Legal Studies Research Paper No. 2802645.

Regulators ubiquitously dichotomize schooling into two discrete sectors: public and private. Although homeschooling is regulated in some contexts as a third sector, the general approach is to treat it as a species of private education by subjecting it to public regulation while simultaneously denying it public funds. But the public/private binary is increasingly difficult to sustain as charter schools multiply and, especially, as virtual schooling increasingly penetrates primary and secondary education. Public school systems are deploying virtual education in ways that erode once impermeable walls between public and private. Many obstacles to homeschooling will fall with those walls — particularly obstacles related to government financing of homeschooling activities.

 

Exhaustion of Digital Goods: An Economic Perspective

Kerber, Wolfgang, Exhaustion of Digital Goods: An Economic Perspective (April 9, 2016). MAGKS, Joint Discussion Paper Series in Economics, No. 14-2016; Zeitschrift für Geistiges Eigentum (ZGE)/Intellectual Property Journal (IPJ) 2016, Forthcoming .

The “UsedSoft” decision of the Court of Justice of the European Union (CJEU) about the right of a buyer of a downloaded copy of a software to resell this copy triggered a controversial discussion about the applicability of the “exhaustion” rule (US: first-sale doctrine) to Copyright protected digital goods (as, e.g., also e-books). This paper offers, in a first step, a systematic analysis and assessment of economic reasonings that have been discussed in the literature about exhaustion, and applies this framework, in a second step, to downloaded digital creative works. An important result is that digitalisation, on one hand, changes considerably the benefits and costs of exhaustion, especially in regard to the danger of jeopardizing the incentives for copyright owners. On the other hand, however, also the costs of imposing restrictions might be high and even increase in a digital economy. This leads to the conclusion that it is necessary to think seriously about the legal limits for the restrictions that Copyright owners should be allowed to impose on their customers. However, these limits might be drawn also by other legal instruments than copyright exhaustion.

 

The Drone Paradox: Fighting Terrorism with Mechanized Terror

Coyne, Christopher J. and Hall-Blanco, Abigail R., The Drone Paradox: Fighting Terrorism with Mechanized Terror (July 27, 2016). GMU Working Paper in Economics No. 16-29.

The U.S. government’s covert drone program is a defining aspect of its military strategy in the transnational War on Terror. We highlight a fundamental paradox with the use of drones to combat terrorism. The U.S. government justifies drones as an efficient method for weakening, and ultimately ending, the threat of international terrorism. Drones, however, create terror among foreign populations, which include innocent civilians. Drone strikes may annihilate specific terrorists, but they do not eliminate terror, which is instead propagated by the U.S. government’s drone program.

 

Echo Chambers on Facebook

Quattrociocchi, Walter and Scala, Antonio and Sunstein, Cass R., Echo Chambers on Facebook (June 13, 2016).

Do echo chambers actually exist on social media? By focusing on how both Italian and US Facebook users relate to two distinct narratives (involving conspiracy theories and science), we offer quantitative evidence that they do. The explanation involves users’ tendency to promote their favored narratives and hence to form polarized groups. Confirmation bias helps to account for users’ decisions about whether to spread content, thus creating informational cascades within identifiable communities. At the same time, aggregation of favored information within those communities reinforces selective exposure and group polarization. We provide empirical evidence that because they focus on their preferred narratives, users tend to assimilate only confirming claims and to ignore apparent refutations.

 

Images that Matter: Online Protests and the Mobilizing Role of Pictures

Casas, Andreu and Webb Williams, Nora, Images that Matter: Online Protests and the Mobilizing Role of Pictures (August 31, 2016).

Do images shared online increase rates of protest mobilization? If so, how? In this paper we study the spread of Twitter support for Black Lives Matter and for Shutdown April 14, a specific Black Lives Matter protest, from April 13 to April 20, 2015. As predicted by the literature on images and social movements, we find using observational data that, all else equal, an increase in the percentage of tweets with images contributes to an increase in subsequent tweets about the movement and to an increase in the number of new users tweeting about the protest. We then examine which types of images contribute most to increases in online social movement support using both observational Twitter data and a survey experiment. This allows us to adjudicate between theories that claim different mechanisms for why new imaging technology should facilitate political mobilization. Beyond providing low cost information, images might a) act as an emotional trigger; b) increase expectations of success; or c) generate collective identity. Our paper thus provides evidence supporting the broad argument that image-sharing increases the likelihood of a protest to spread while also teasing out the narrow mechanisms at play in a new media environment.