Economic analysis of privacy

Notes for April 29

Main points

We discussed Posner’s economic analysis of the right to privacy. This comes in two parts.

  1. An economic analysis of privacy: an examination of how privacy rights either favor or hinder social wealth.
  2. A review of the decisions of judges to see if they conform with the economic analysis when deciding privacy cases.

We only discussed the first part. The second part is like the Warren and Brandeis article: it reviews judicial decisions and claims that these decisions fit a pattern, even though the judges who wrote the decisions were not aware of this fact. It’s interesting, but I decided we would not have time to do it properly.

What is an economic analysis?

As Posner describes it, the economic analysis of law is:

“the hypothesis that the common law is best explained as if the judges were trying to maximize economic welfare. … common law adjudication brings the economic system closer to the results that would be produced by effective competition — a free market operating without significant externality, monopoly, or information problems.”Richard Posner, The Economics of Justice, (Cambridge: Harvard University Press, 1981), 4-5.

In the case of privacy, he claims, judicial decisions reflect the economic analysis of privacy that he gave in the section we discussed.

According to Posner, the primary economic case for giving legal, enforceable rights to keep information private concerns information that is costly to acquire. If this information could not be kept secret from others, no one would have an incentive to go to the trouble of finding it: others could just sell the fruits of their labor. Everyone is better off with the system of property rights. Those who can get the information are willing to do so and those who would pay to buy it from them can do so as well.

Personal information, by contrast, is usually used to deceive others. To put it another way, it is used to get people to buy things they do not want. So, for example, job applicants seek to get employers to make hiring decisions that the employer would not otherwise want to make by hiding criminal records and other facts about themselves.

That said, this point about the privacy of personal information does not apply to information that has no social cost and for which there are no barriers to markets. For example, there is no social cost to my keeping the information about what I look like in the shower private: I cannot use that information to make you worse off in an exchange. And if you really want the information, you can easily find me and make me an offer.

Finally, there is an economic case for protecting communication. Without it, it is harder to get candid information and opinions from others.

The value of privacy

I think Posner’s article is valuable as a reminder of the fact that privacy can be used to manipulate others. I think he is also right to say that quite a lot of what is written in favor of privacy is pretty shallow. Even Warren and Brandeis, whose article I greatly admire, only really spent a paragraph or two explaining the value of privacy. And they had a tendency to indulge in some overheated prose.

I said that, in my opinion, the strongest argument for privacy involves the effort it takes to live completely in public. When you are being observed by someone else, you have to put a lot of work into presenting yourself in ways that you and the people around you are comfortable with. That means you have to be highly self-conscious of your own behavior and you have to pay a lot of attention to how others think and feel. I think one reason we value privacy is because it gives us time out from the real work that goes into maintaining social relations.

Claire and Josh were not crazy about this story. They said that it sounded to them as though I was just repeating Posner’s point: we like privacy because it gives us an opportunity to manipulate the way others see us rather than letting them see the truth. Fair enough: I did not adequately explain why I thought I was saying something different. Score one for Claire and Josh. That said, let me take one more crack at it here.

Posner emphasizes the way people use privacy to manipulate one another. By giving others a false impression of me, I get them to do things that they would not otherwise want to do. I make them worse off than they would otherwise be. I think he’s right that this is one way privacy is used.

I also think Claire and Josh are right to say that what I was talking about is similar in that it involves keeping the full truth away from others. However, I do not think that keeping the truth away from someone else always involves manipulation. Think of how impossible our class would be if everyone knew everything about everyone else in it: everyone’s life history, everyone’s medical problems, everyone’s personal hangups, everyone’s thoughts, opinions, daydreams, tastes, fears, and so on. Think of trying to have a seminar with your family.

In short, many social interactions work much better without full information. So withholding information by keeping it private often times makes others better off than they would be. Or, at least, withholding it isn’t used to make them worse off. That’s why I think my story is not simply about manipulation and that’s why I think it is different than what Posner had said.

I should add that the link between this point about the value of privacy and rights to privacy is going to be tricky. If people are generally better off not knowing piece of information X, then they are not going to try to acquire it. But then there is not much of a need for a legal right to protect the privacy of information X. Maybe the case for a legal right to privacy partly depends on the idea that there is some information that we are better off not having but that we cannot resist trying to acquire. For example, ‘we can’t help but be attracted to gossip even though we know it poisons our relations with others more often than it improves them.’ Just a guess on my part.

Key concepts

  1. Posner’s claims about the costs of privacy rights.
  2. When Posner thinks privacy would be economically efficient.
This page was written by Michael Green for Philosophy of Law, Philosophy 34, Spring 2014. It was posted May 5, 2014.
Philosophy of Law