This chapter first describes the standard economic analysis of privacy, data protection and surveillance, looking at the costs and benefits to different parties and the incentives each therefore has, as well as the aggregate social welfare impacts of their decisions. It then considers the market failures that can lead to non-optimal outcomes, including information asymmetries, negative externalities, and cognitive biases of individual decision-makers. Finally, it analyses the economic impact of various regulatory options for correcting these market failures, an important consideration given that most advanced and many emerging economies now have extensive systems of regulation in this area.
Brown, Ian, The Economics of Privacy, Data Protection and Surveillance (July 11, 2013). M. Latzer and J.M. Bauer (eds.) Handbook on the Economics of the Internet, Cheltenham: Edward Elgar, Forthcoming.