Monetary Remedies for Zero-Price Privacy Regulation: An Economic Perspective

Zero-price goods and services potentially create a problem for regulators interested in crafting monetary remedies that are deterrent, efficient, and inexpensive to implement in that they prevent the use of an easy proxy for injury or gain. Major privacy regulations in the EU and U.S. seem to have focused on deterrence, but in pursuit of cheap, have left any hope of efficiency to the discretion of the enforcers with little guidance on what that would mean. This paper examines regulatory choices for monetary remedies in the context of zero-price privacy and data security practices. The paper lays out the economic framework consistent with a broad range of potential harms, and argue that failing to provide any link or guidance between these remedies and the welfare effects of the practices in question will create opportunity for regulatory capture or improper political influence, and muddy the deterrent signal to potential violators.

By Andrew Stivers¹

For efficiency reasons, economists often argue that monetary remedies for competition or consumer protection law violations should be tied, at least proportionally, to the welfare effects of those violations. Here, efficiency means both accounting for the intended benefits of regulatory activity and attempting to minimize any effects on legitimate activity. A convenient, if incomplete and sometimes misleading, way to proxy for negative welfare effects is with a price premium associated with the practice in question.