Why Stronger Privacy Regulations Do Not Spur Increased Internet Use

Summary of Study

Bottom Line: Contrary to conventional wisdom in tech circles, stronger privacy regulations don't necessarily lead to more technology use. Beyond a baseline level of consumer protection, additional regulation restricts the supply of digital technologies by raising costs for users and reducing earnings for companies. Policymakers should reject proposals claiming that greater regulation of the digital economy will increase trust. 

There is a sweet spot where regulations increase protection but don't become so burdensome as to reduce use. For example, regulations could make vehicles even safer, but not without making them more expensive, and therefore reducing driving. The same is true for technology. Increased regulations to protect users will reduce innovation and put products out of reach for some consumers. Moreover, there's little-to-no evidence they will increase consumer trust.  

The relationship between regulation and trust is not linear: more regulation does not lead to more use. In fact, beyond a reasonable baseline of regulation — something the United States appears to have — most proposals to increase privacy rules do little to increase trust and use.  

Likewise, the relationship between privacy regulation and usage is not linear: More regulation does not always lead to more innovation. Instead, the relationship appears to be best modeled as an inverted U: where too little regulation limits usage, but too much regulation raises the cost or reduces the relative quality of digital technologies, thereby negatively impacting the number of people who use them. 

If the trust-regulation relationship were linear, countries with stronger privacy protections would have lower levels of privacy concerns and higher levels of trust. However, strong privacy regulations do not have a positive relationship with trust in internet businesses and digital services. In fact, the level of trust in the internet is not greater in most countries with moderate to heavy regulations.

This relationship suggests there is an optimal level of regulation — a Goldilocks level — that is neither too weak nor too strong. Too little regulation is problematic, as it does not provide baseline protections that encourage consumer trust.  But overly restrictive regulations are not only unlikely to increase consumer trust, they actually reduce the ability of companies to innovate or provide free or low-cost services. These findings run counter to many leading government bodies and NGOs which argue that greater privacy protections foster innovation and technology use. 

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Feature Charticle

Findings:

  • The relationship between privacy regulation and usage is not linear. Rather, it is best modeled as an inverted U: where too little regulation limits usage, but too much regulation raises the cost and reduces the relative quality of digital technologies, thereby reducing use.  
  • There is a sweet spot where regulations increase protection but don't become so burdensome as to reduce use.
  • These findings run counter to many leading government bodies and NGOs which argue that greater privacy protections foster innovation and technology use.