Putting a Price on Privacy

"In my experience these results are remarkable. It is rare to find so many people benefit so quickly from a relatively inexpensive government program."

Those were the words of Harris Poll chairman Humphrey Taylor in 2004.

Taylor was of course talking about the national Do Not Call registry. The program helped consumers fight the flood of telemarketing phone calls that were becoming one of life's worst annoyances. By February of this year, over 139 million numbers had been registered on the Do Not Call list.

(My question is why haven't even more people signed up? By my very very rough calculation there are at least 100 million residential numbers not on the list. I can imagine a few strange circumstances in which somebody might want to receive telemarketing calls....but that many people?)

Despite the fact that the registry was provided free to consumers, economists have been trying to use data derived from the registry to figure out how much people value their privacy, at least as far as telephone solicitations are concerned.

New Google economist Hal Varian in 2004 estimated that the benefit households derived from the registry ranged between $0.55 to $33.21 per year, a very wide margin.

Now, Ivan Png, a professor of economics at the National University of Singapore has new, and perhaps more useful, figures.

Before the federal government introduced its Do Not Call list, 29 states had similar programs in place. The big difference was that many of these states charged consumers for getting on the list. Png used the difference between the demand for the state and federal lists to calculate a value consumers place on banishing the pesky calls. His figures are much tighter than Varian's and came out to be between $3.22 to $8.25 per number per year. (Or a total across all numbers of $200 million to $513 million)

Using the $8.25 per year figure (which Png calls the "best estimate"), that means the telemarketing industry would have to dole out $1 billion per year to make the 139 million consumers on the list indifferent between receiving solicitations or not.

That's about 7 percent of the telemarketing's annual revenue according to data from MarketResearch.com.

Yet, we'll probably never see that day, Png says.

"There is a collective action problem -- which telemarketer provides that value? Consumers make a zero-one decision on the "do not call" list -- they either accept all unsolicited telemarketing or none. There is no way (apart from somehow being solicited other than by telephone) for them to selectively accept telemarketing," Png wrote in an email to me.

In other words, in the absence of a collective decision by the direct marketing industry to offer the $1 billion in benefits, there's no other motivation for all companies to offer their part of the benefit. Let's say I'm somehow persuaded by one direct marketer to get off the Do Not Call list. This would remove the incentive for another telemarketer to chip in since they can now call me too. The second company free rides, reducing the reason for the first company to offer the benefit in the first place since there's no guarantee that company two will return the favor.

Still another interesting result from Png's numbers relates to the one measure we already have of how much people are willing to pay to avoid unwanted calls: unlisted numbers. Verizon charged customer in New York $2.50 per year in 2006 to have their numbers unlisted. If Png's numbers are accurate, Verizon and other companies like it could be under pricing their unlisted services.

Related:
The Economics of Privacy