Cost-Benefit Analysis Needed for Commerce Department Privacy Framework

Cost-Benefit Analysis Needed for Commerce Department Privacy Framework

Green Paper Violates Spirit of Obama Executive Order on Regulation

Contact: Amy Smorodin
(202) 828-4405

January 28, 2011 – The U.S. Department of Commerce should rigorously analyze the costs and benefits of its proposed privacy framework and alternative policy proposals before moving forward with any recommendations, states Thomas Lenard in comments submitted today in response to the agency’s Green Paper on online privacy. Without such an analysis, the agency cannot accurately predict if its proposal will improve or reduce consumer welfare.

Lenard, Technology Policy Institute President and Senior Fellow, states that the Green Paper “violates the spirit, if not the letter, of President Obama’s recent executive order on regulation, which stresses the need to evaluate both benefits and costs.” He continues, “While the DOC is not formally proposing a regulation … to the extent the Green Paper’s recommendations are adopted, they will have the effect of regulation.”

Lenard states that “The Department could make a real contribution if its proposed Privacy Policy Office (one of the Green Paper’s major recommendations) becomes a locus for data collection and serious privacy-related research,” because “the privacy debate is taking place in an empirical vacuum.”

Lenard notes that while the Green Paper contains an overview of privacy issues, it fails to present any data on current privacy practices or analysis of the costs and benefits of its proposed privacy framework. Before finalizing the proposal, Lenard urges the agency to:

  • Collect current data on the privacy and data management practices of major web sites. It is impossible to make an informed policy decision without an accurate understanding of current privacy practices. The most recent available data appear to be from 2001.
  • Produce evidence showing that current practices are harming consumers. The agency’s privacy framework will only produce benefits to the extent it alleviates identified harms.
  • Review what we know about how consumers value privacy. In addition to referring to current studies, the agency should also perform additional studies as a basis for estimating the benefits of a new privacy framework.
  • Estimate the costs of its privacy framework and alternative proposals.These estimates should include direct pecuniary costs to firms from devoting more resources to privacy and the indirect costs of having less information available.
  • Produce sufficient evidence of a reasonable expectation that the benefits of its proposal are greater than the costs. Otherwise the proposal should not be adopted.

The full comments are available on the TPI website.

The Technology Policy Institute

The Technology Policy Institute is a non-profit research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/

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