Transaction costs, privacy, and trust: The laudable goals and ultimate failure of notice and choice to respect privacy online

The goal of this paper is to outline the laudable goals and ultimate failure of notice and choice to respect privacy online and suggest an alternative framework to manage and research privacy.  This paper suggests that the online environment is not conducive to rely on explicit agreements to respect privacy. Current privacy concerns online are framed as a temporary market failure resolvable through two options:  (a) ameliorating frictions within the current notice and choice governance structure or (b) shifting from a contract-governed exchange to a focus on implicit, negotiated rules within a long-term relationship. Importantly for firms, examining privacy in practice shifts the firm’s responsibility from adequate notice to identifying and managing the cost-benefit analysis within a specific context.

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