Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, April 08, 2005

Personal Data and Regulation
Internalizing an Externality

Is there a good economics argument for regulating the collection of personal credit information? Why can't or don't markets for information work best without gubmnt intervention? Maybe they do. However, Kip thinks the externality argument creates a reason for some intervention.

... [I]n the case of personal data, it seems to me that some regulation
is warranted for the same reason that (valid) regulation ever exists: there are externalities to be corrected.

ChoicePoint, credit bureaus and the other personal data companies make money off me, and you and everyone else. Yet we get no compensation for what could be deemed a "free rider" problem. In fact, we have to pay them for the "service" of accessing our own data. (Note: Some states mandate free access.)

So is it too "un-libertarian" to advocate internalizing the externality by requiring any company that makes a market in personal data to allow free self-access to that data? I think not. (Note: The news article [link added here] does not indicate whether ChoicePoint would make the access free or fee-based.)

Of course, if the cost of correcting the externality is greater than the externality itself, then it makes no economoc sense to correct it. But I would think that there is a rebuttable presumption that the cost of free online (or "SASE") access would be de minimus.

The externality appears to be twofold. One is the dissemination of information about an individual, but that isn't much of an externality in a real sense. The second is the risk of dissemination of misinformation. That risk imposes costs on individuals about whom the data are compiled: for example, the risk of having a bad credit rating, the cost of checking to make sure one's credit rating is correct, and the cost of correcting misinformation.

It is this combination of costs that leads to the economic argument that it would be efficient for individuals to receive low-cost access to their personal information on large personal information data bases.
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