¹ Webster's International Dictionary, 2d ed., s.v. “privacy.”

² See the references in Posner, Richard, “The Right of Privacy,” Georgia Law Review 12, no. 3 (Spring 1978): 393–428Google Scholar, to the anthropological literature on the lack of privacy in primitive societies.

³ For a more general discussion of rights from a related perspective, see Friedman, David, “A Positive Account of Property Rights,” Social Philosophy and Policy 11, no. 2 (Summer 1994): 1–16.CrossRefGoogle Scholar

⁴ One example of this occurs in the context of a takeover bid. In order for the market for corporate control to discipline corporate managers, it must be in the interest of someone to identify badly managed corporations and take them over. Doing this requires that a takeover bid can remain secret long enough for the person responsible to accumulate a substantial ownership in a corporation at the pre-takeover price. In a very public world, this is hard to do. Currently it is also hard to do in the United States because of legal rules deliberately designed to limit the secrecy of takeover bids. The result is not, of course, to eliminate all takeover bids or all market discipline over corporate managers, but merely to reduce both below what they would be in a more private and less regulated market.

⁵ An exception is the case where the relevant information is negative. If I have control over information about me, potential lenders have no way of knowing whether the reason they have seen no reports of my having ever declared bankruptcy is that I have not done so, or that I have done so and have suppressed the information. Thus, borrowers who have not declared bankruptcy in the past will be better off in a world where privacy rights with regard to such information are weak. The problem disappears if a borrower can take an observable action—such as signing a legally enforceable waiver of the relevant legal privacy rights—which demonstrates that the information is not being suppressed.

⁶ Many of the points made in this section of the essay can be found, in somewhat different form, in Posner, , “The Right of Privacy,”Google Scholar and Posner, , “An Economic Theory of Privacy,” Regulation 2, no. 3 (05/06 1978): 19.Google Scholar He finds the case for the general desirability of privacy to be weak.

⁷ It is called bilateral monopoly because it corresponds to a situation in which there is both a monopoly seller and a monopoly (strictly speaking, monopsony) buyer. Discussions of bilateral monopoly can be found in Friedman, David, Hidden Order: The Economics of Everyday Life (New York: Harper Business, 1996)Google Scholar, chap. 11; and in Friedman, David, Law's Order: What Economics Has to Do with Law and Why It Matters (Princeton, NJ: Princeton University Press, forthcoming)Google Scholar, chap. 8. Law's Order is also available on the World Wide Web at http://www.best.com/~ddfr/Laws_Order/laws_order_ToC.htm.

⁸ This might not be the case if we are frequently faced with situations in which my prospective gains from the bargain provide the incentive for me to generate information that is of value to other people as well. There is little point to spending time and money predicting a rise in wheat prices if everything you discover is revealed to potential sellers before you have a chance to buy from them. See Hirschleifer, Jack, “The Private and Social Value of Information and the Reward to Inventive Activity,” American Economic Review 61, no. 3 (09 1971): 561–74.Google Scholar

⁹ This argument is proposed as a possible justification for trade secret law in Friedman, David, Landes, William, and Posner, Richard, “Some Economics of Trade Secret Law,” Journal of Economic Perspectives 5, no. 1 (Winter 1991): 61–72.CrossRefGoogle Scholar

¹⁰ One reason that the assumption may be correct is the difficulty of propertizing information. Suppose that keeping some particular fact about me secret benefits me at the expense of people that I deal with; for simplicity, assume that I get this benefit through a simple transfer with no net gain or loss. If you discover the fact, you have no incentive to keep it hidden, so you tell other people. You end up getting only a small fraction of the benefit, while I bear all of the cost, so I am willing to spend much more to conceal the fact than you would be willing to spend to discover it. This would not be the case if you could sell the information to other people who deal with me—as credit agencies, of course, do. But in many contexts such sales are impractical, due to the problems of transacting over information (briefly discussed below).

¹¹ A demand is elastic if a 1 percent decrease in price results in more than a 1 percent increase in quantity demanded. A demand is inelastic if a 1 percent decrease in price results in less than a 1 percent increase in quantity demanded.

¹² There may be very costly ways of doing so. At one point during litigation involving conflicts between the Church of Scientology and discontented ex-members, information that the Church wished to keep private became part of the court record. The Church responded by having members continually checking out the relevant records, thus keeping anyone else from getting access to them. And I might preserve my privacy in a world where court records were public by changing my name.

¹³ For a discussion of why it makes sense to treat some things as property and some as commons, see Friedman, David, “Standards as Intellectual Property: An Economic Approach,” University of Dayton Law Review 19, no. 3 (Spring 1994): 1109–29Google Scholar; and Friedman, , Law's Order, chap. 10.Google Scholar

¹⁴ Coase, Ronald, “The Problem of Social Cost,” Journal of Law and Economics 3, no. 1 (10 1960): 1–44.Google Scholar See also Friedman, , Law's Order, chap. 4.Google Scholar

¹⁵ This assumes that A's possession of information does not impose a cost on B. But the argument generalizes to the case where the cost to B of A possessing information is typically lower than the benefit to A, which brings us back to the earlier discussion of reasons why privacy is likely to result in net costs.

¹⁶ Friedman, , Landes, , and Posner, , “Some Economics of Trade Secret Law.”Google Scholar

¹⁷ Ellickson, Robert, Order Without Law: How Neighbors Settle Disputes (Cambridge, MA: Harvard University Press, 1991).Google Scholar

¹⁸ A longer version of this argument can be found in Friedman, David, “Less Law than Meets the Eye,” review of Order Without LawGoogle Scholar, by Ellickson, Robert, Michigan Law Review 90, no. 6 (05 1992): 1444–52.Google Scholar

¹⁹ Posner, Richard, “Blackmail, Privacy, and Freedom of Contract,” University of Pennsylvania Law Review 141, no. 5 (05 1993).CrossRefGoogle Scholar

²⁰ These issues are explored in an extensive literature, including: Lindgren, James, “Blackmail: On Waste, Morals, and Ronald Coase,” UCLA Law Review 36, no. 3 (02 1989): 597–608Google Scholar; Lindgren, , “Kept in the Dark: Owens's View of Blackmail,” Connecticut Law Review 21, no. 3 (Spring 1989): 749–51Google Scholar; Lindgren, , “Secret Rights: A Comment on Campbell's Theory of Blackmail,” Connecticut Law Review 21, no. 2 (Winter 1989): 407–10Google Scholar; Lindgren, , “In Defense of Keeping Blackmail a Crime: Responding to Block and Gordon,” Loyola of Los Angeles Law Review 20, no. 1 (11 1986): 35–44Google Scholar; Lindgren, , “More Blackmail Ink: A Critique of Blackmail, Inc., Epstein's Theory of Blackmail,” Connecticut Law Review 16, no. 4 (Summer 1984): 909–23Google Scholar; Lindgren, , “Unraveling the Paradox of Blackmail,” Columbia Law Review 84, no. 2 (03 1984): 670–717Google Scholar; Murphy, Richard S., “Property Rights in Personal Information: An Economic Defense of Privacy,” Georgia Law Journal 84, no. 7 (07 1996): 2381–417Google Scholar; Posner, , “The Right of Privacy”; Posner, “An Economic Theory of Privacy”Google Scholar; Posner, , The Economics of Justice (Cambridge, MA: Harvard University Press, 1981), chaps. 9–10, pp. 231–309Google Scholar; Posner, , Overcoming Law (Cambridge, MA: Harvard University Press, 1995), chap. 25, pp. 531–51Google Scholar; and Posner, , “Blackmail, Privacy, and Freedom of Contract.”Google Scholar

²¹ Posner has argued that laws against blackmail are desirable in circumstances where private law enforcement is for some reason inefficient. See, for example, Posner, , Economic Analysis of Law, 5th ed. (New York: Aspen Law & Business, 1998), 660–61.Google Scholar

²² Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Cannan, Edwin (New York: Modern Library, 1937), bk. 5, chap. 2, pt. 2, art. 2.Google Scholar

²³ Ibid., bk. 5, chap. 2, pt. 2, art. 4.

²⁴ Of course, I could also protect myself by engaging in political activity—for example, by lobbying Congress or making contributions to the police benevolent fund. For most individuals, such tactics are rarely worth their cost.

²⁵ Privacy might also be on net efficient if one of the two functions met the required condition and produced gains that more than outweighed the loss from the function that did not.

²⁶ This problem suggests a further point relevant to the issue of blackmail. The information that I am a swindler is worth more to my potential victims than it is to me. But since it is much easier to sell a single piece of information to one person than to many, the blackmailer can collect most of its value to me from me and has no way of collecting any significant fraction of its value to them from them. So he sells it to me instead of to them, which is an inefficient outcome—and one that may be prevented by laws against blackmail.

²⁷ Throughout this discussion, I am assuming that the purpose of messages is to propose voluntary transactions. I am, thus, ignoring cases such as harassment, where the benefit to the sender does not depend on the buyer deciding that the message is of value. I am also ignoring cases of e-mail bombing (flooding someone's mailbox in order to prevent him from using it), where the purpose of the message is to impose a cost on the recipient.

²⁸ This result is not quite as rigorous as it sounds, since the cost of evaluating an offer is already “sunk” at the point when you decide whether to accept it. Consider an offer that costs fifteen cents to evaluate and proposes a transaction that would produce a gain of ten cents for the individual receiving the offer. The receiver, having already paid the examination cost, accepts the offer and so produces a gain for the sender sufficient to more than cover the cost of sending. I will ignore such complications since I doubt they are of much real world importance.

²⁹ In modern-day Israel, judging by my observations, asking someone his salary is considered perfectly normal, whereas in the United States, it is a violation of norms of privacy. I have no good explanation for the difference.

³⁰ The Fair Credit Reporting Act, 15 U.S.C. sec. 1681 et seq., regulates firms that produce consumer reports—information about an individual consumer used by a firm to determine whether to extend that consumer credit, to decide whether to hire him, or to accomplish some other legitimate business purpose. The text of the act is available on-line at http://www.ftc.gov/os/statutes/fcra.htm.

³¹ Although it might under some circumstances produce net costs associated with attentional privacy.

³² For a much longer discussion, see Friedman, David, “A World of Strong Privacy: Promises and Perils of Encryption,” Social Philosophy and Policy 13, no. 2 (Summer 1996): 212–28.CrossRefGoogle Scholar

³³ The process used for digital signatures in the real world is somewhat more elaborate than this, but the differences are not important for the purposes of this essay. A digital signature is produced by using a hash function to generate a message digest—a string of numbers much shorter than the message it is derived from—and then encrypting the message digest with the sender's private key. The process is much faster than encrypting the entire message and almost as secure.

³⁴ Friedman, , “A World of Strong Privacy.”Google Scholar

³⁵ See Friedman, David, “In Defense of Private Orderings: Comment on Julie Cohen's ‘Copyright and the Jurisprudence of Self-Help,’” Berkeley Technology Law journal 13, no. 3 (Fall 1998): 1151–72.Google Scholar

³⁶ For an early and still interesting fictional exposition of the idea of separating realspace and cyberspace identities, see Vernor Vinge's novelette “True Names,” included (among other places) in Vinge, , True Names and Other Dangers (New York: Simon and Schuster, 1987).Google Scholar A more recent fictional effort, picturing something much closer to what we are actually likely to see in a few decades, is Stiegler, Marc, EarthWeb (New York: Simon and Schuster [Baen Books], 1999).Google Scholar

³⁷ There have been experiments with e-cash. Most notable of these experiments was that performed by the Mark Twain Bank of St. Louis, which worked with David Chaum, the cryptographer responsible for many of the fundamental ideas in the field. The currency was semianonymous, meaning that the issuing bank could identify one party to the transaction if it had the cooperation of the other.

³⁸ PGP (Pretty Good Privacy) is a freeware program (also available in a commercial version) for doing public-key encryption and decryption, and for keeping track of other people's public keys. It is available from, among other places, http://web.mit.edu/network/pgp.html.

³⁹ Brin, David, The Transparent Society: Will Technology Force Us to Choose Betiveen Privacy and Freedom? (Reading, MA: Addison-Wesley, 1998).Google Scholar

⁴⁰ There are a few exceptions created by the law, such as the rules under which a record of the criminal conviction of a minor may sometimes be expunged. (In Florida, for example, such a record may be expunged when the minor reaches twenty-six years of age. See Fla. Stat. chap. 943.0515, on the World Wide Web at http://www.leg.state.fl.us/citizen/documents/statutes/1994/CHAPTER_943.html.)

⁴¹ A human solution to the problem of forged data was proposed by Heinlein, Robert in Stranger in a Strange LandGoogle Scholar:a body of specially trained “fair witnesses,” whose job it was to observe accurately and report honestly. See Heinlein, , Stranger in a Strange Land (New York: Putnam, 1961).Google Scholar

⁴² One way of time-stamping a digital document is to calculate a hash of that document—a much shorter string of digits derived from the document in a fashion that is difficult to reverse—and post the hash in some publicly observable place. The document is still secret, since it cannot be derived from the hash. The existence of the hash at a given date can later be used to prove that the document from which it was derived—in our case, a digital video—existed at the time that the hash was posted. The fact that the hash function cannot easily be reversed means that one cannot post a random hash and then later create a suitable document that would be a source of that particular hash.