Markets and Information Richard Warner

Three Types of Privacy  Spatial rights define a physical zone of control over intrusions by others.  Decisional rights protect an individual’s freedom of choice.  Informational rights demarcate an ability to determine what others know about us and what they do with that knowledge.

Privacy and the Market  When considering business threats to privacy, it is easy, in the eagerness to protect privacy, to overlook the critical role that information plays in making it possible for market exchanges to efficiently provide us with goods and services

Coordination Example  “During the morning a number of people step into a Milan café for an espresso. They do not doubt that it will be available. What justifies their confidence? Making the coffee available rests on a great deal of cooperation, specifically the assignment to many people of performances that together accomplish a feat far beyond the capacity of any one person alone.

Coordination Example  “It is accomplished by market transactions that assign and link both multiple performances and multiple chains of them. Farmers cooperate in growing and harvesting the coffee beans. Truck drivers or locomotive engineers transport the beans to a seaport on highways or railroads that have been constructed by many kinds of cooperating laborers.

Coordination Example  “At the seaport, longshoremen and ships’ crews join the chain. At a dock in Genoa, shipping the beans on to Milan calls again on performances from longshoremen, warehousers, and truckers. Somewhere along the chain, some people roast the beans, and others fabricate bags for carrying them.

Coordination Example  “Think of other participating cooperators; insurers and inspectors; wholesalers and retailers.... However great their distance from Milan, innumerable people play their roles in cooperation, no less so than the surly or obliging waiter in the café.”  Charles E. Lindblom, The Market System: What It Is, How It Works, and What To Make of It (2001).

Information’s Role  The coordination of these individual efforts occurs without centralized planning or direction; information is the thread that ties the efforts together.  The farmers growing coffee beans estimate, based on a variety of factors, the volume buyers will want to purchase, and so on.

Efficiency  Market economies depend on a flow of information between buyers and sellers.  The more accurate and less costly the information, the more efficient the economy.  We spend less to achieve the same results, and the savings can be use for other purposes- -education, relief of poverty, improved health insurance, and so on.

Business Uses of Information  Product development and design  Financial planning  Customer service  Advertising  Price discrimination

Targeted Advertising  Advertising plays a critical role in informing buyers about what is available where at what price. This is true despite advertising’s manipulative purpose.  The more targeted advertising is, the more efficient it is. The more targeted advertising is the more likely its message is relevant to its recipient.  Targeting requires information about buyers.

Privacy Versus Efficiency  To the extent that privacy protections reduce a businesses ability to target advertising, privacy protections decrease efficiency.  How much privacy, if any, should we sacrifice for the sake of efficiency?  Current U. S. law is heavily biased in favor of efficiency.