Philosophy of Law Spring 2022

Economic Analysis of Privacy


Posner’s economic analysis of the right to privacy 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 will only discuss 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 is 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. (Posner 1981, 4–5)

That is, judges tend to assign legal rights in ways that either make people pay for the costs of their economic activities to third parties (externalities), foster economic competition, or reduce information problems that hinder people from making mutually beneficial exchanges. When they cannot do those things directly, they assign rights in ways that reflect the results that ideally competitive markets would have reached.

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 private 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. The idea is that everyone is better off with the system of property rights. Those who can get the information are willing to do so, provided they can charge a price, 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 the barriers to negotiating a market exchange (“transaction costs”) are low. 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. I probably won’t accept, but that just means we can’t agree on a price; it does not mean that my having a privacy right prevents desirable kinds of negotiation and exchange. To use the economist’s lingo, the transaction costs are low but my reservation price is higher than you are willing to pay.

So the economic analysis is not hostile towards granting individuals privacy rights to a lot of what we think of as private information. But it doesn’t especially support doing so either. There’s little at stake either way, according to the economic analysis.

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

Main points

  1. Posner’s claims about the costs of privacy rights.
  2. When Posner thinks privacy rights would be economically efficient and when they would not.


Posner, Richard A. 1978. “The Right to Privacy.” Georgia Law Review 12 (3): 393–422.
———. 1981. The Economics of Justice. Cambridge: Harvard University Press.