Cost-Benefit Analysis of FTC Privacy Proposal Needed

Cost-Benefit Analysis of FTC Privacy Proposal Needed

Lenard Questions Staff Report’s Lack of Data, Basis for Policies

Contact: Amy Smorodin
(202) 828-4405

February 17, 2011 – The Federal Trade Commission should rigorously analyze the costs and benefits of its proposed privacy recommendations, including the “Do Not Track” mechanism, before moving forward with any policy proposals, states Thomas Lenard in comments submitted in response to the Commission’s Staff Report on privacy. Without such an analysis, the Commission cannot accurately predict if its recommendations will improve or reduce consumer welfare.

Lenard, Technology Policy Institute President and Senior Fellow, notes that the Staff Report fails to present any data on current privacy practices or analysis of the costs and benefits of its proposed privacy policies. “Because the Staff Report provides virtually no new data or analysis, it is seriously deficient as a foundation for new policy recommendations,” he explains. “It also 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.”

Lenard specifically questions the Commission’s “Do-Not-Track” proposal, which the FTC endorses while at the same time soliciting comments on how such a system should be designed and how it would impact consumers and advertisers. Lenard also warns of several direct and indirect costs if the proposal is implemented. “A Do-Not-Track mechanism… would reduce the value of the Internet as an advertising medium, and therefore would reduce the revenues available to support Internet content,” he explains. In addition, it would affect the quality of such services as search engines, which use data to improve search algorithms and protect against threats.

Lenard also voices concern over the enhanced consent requirement if data is used for something other than the “commonly accepted” practices defined by the Report. Specifically, the Report mentions deep packet inspection as a practice that would require enhanced consent because of limited broadband competition. Whether or not this assessment of broadband competition is accurate, the Report does not apply the same criterion to other entities that use consumer data, and therefore is promoting a policy that is not technology neutral. In addition, the Report does not acknowledge that this proposal could limit ISP’s participation in the online advertising market, cutting off a potential revenue source that could spur broadband deployment.

Before finalizing the proposal, Lenard urges the agency to:

  • Collect current data on the privacy and data management practices of major web sites.
  • Produce evidence showing whether current practices are harming consumers.
  • Review what we know about how consumers value privacy.
  • Estimate the costs of its privacy framework and alternative proposals.
  • Produce sufficient evidence of a reasonable expectation that the benefits of its proposal are greater than the costs.

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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