Today, a growing chorus of experts, journalists, and policymakers calls for the creation of property rights in personal data. In theory, property rights emerge when the gains from propertization outweigh the costs of securing those rights. This formula, originally identified by Harold Demsetz, explains the development of property rights in land, intellectual property, and many other assets.
Applying Demsetz’s theory, this Article asks whether the time has come to extend property rights in personal data. The answer is yes.
The first half of Demsetz’s formula estimates the gains from extending property rights. Under the contract-law-based status quo, the market for personal data suffers from high information and enforcement costs along with inadequate incentives to supply and safeguard data. Propertization promises to mitigate – though not completely resolve – those challenges.
The second half of Demsetz’s formula trains on the cost of securing property rights. For property rights to be secure in practice – not just desirable in theory – institutional investments are necessary. The conventional wisdom holds that only state-run institutions, such as courts and regulators, can protect property. But rather than rely on regulators and courts, policymakers should deputize private adjuncts to define and enforce property rights. This approach enlists the most efficient managers of information – data processing firms – in securing property. Compared with a propertization regime that relies on state-run institutions, mobilizing private adjuncts promises to substantially lower the cost of securing property rights.
Because the gains from propertization are larger, and the costs smaller, than previously thought, both prongs of Demsetz’s formula favor the creation of property rights in personal data.
Hazel, Steven, Personal Data as Property (August 7, 2020). Syracuse Law Review, forthcoming.