If regulation won’t stop privacy invasion, what will? HBS professor John Deighton has an answer that involves convincing companies to pay us consumers to use our private information. Instead of relying on regulators to protect our privacy against telemarketers, data miners, and consumer research companies, we should capitalize on the value of our personal information and get something of value in return.

Deighton’s recent working paper, “Market Solutions to Privacy Problems?,” suggests that consumers would gain the advantage if they sold their personal information instead of allowing marketing companies to sell it. Consumers, he asserts, have much to gain — be it money, price discounts, better customer service, or products tailored specifically to their needs.

In the current system, information that is gathered about individuals by stores, researchers, and credit agencies belongs to those companies, not to the individuals. The companies in turn resell that information to others, leaving the source of the information — the individual — out of the loop. Today, consumers face a stark choice between blanket do-not-call regulation and indiscriminate direct marketing intrusion. There is a middle ground, says Deighton, but it will take a new kind of institution, a personal data clearinghouse, to give consumers back their marketplace identities.

In proposing a market-based solution to the consumer-privacy problem, Deighton says, “Markets have an advantage over rigid regulation in that they set cunning against cunning and self-adjust to technological innovation.” Although he admits that selling personal information is a difficult idea to embrace, Deighton believes it is one whose time has come. “The challenge is to give people a claim on their identities while protecting them from mistreatment. The solution is to create institutions that allow consumers to build and claim the value of their marketplace identities and that give producers the incentive to respect them. Privacy and identity then become opposing economic goods, and consumers can choose how much of each they would like to consume.”

Excerpted from HBS Working Knowledge. For the full article, visit http://hbsworkingknowledge.hbs.edu/item.jhtml?id=3636&t=marketing.

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