Economics, Signals and P3P

Electronic commerce is now an established, vital part of the world economy. However, this economic sector is currently endangered by consumers’ well-founded concern for the privacy of their information. Recent surveys indicate that this concern is beginning to alter consumers’ spending habits. The World Wide Web Consortium is well aware of these concerns, and has produced the Platform for Privacy Preferences Protocol as a mechanism to help consumers protect their online privacy. This mechanism relies on the use of machine-readable privacy policies, posted on a website, and interpreted by a client-side browser extension. However, recent surveys indicate that adoption of this technology is stagnating on the server side, and work on an updated version of the Platform has been halted. We use signaling theory as a framework to model the likely future evolution of the Platform, in an effort to gauge whether it will flourish or wither as a technology. We find that, given the current rates of adoption and the (non-existent) premium that sites with privacy policies can charge, signaling theory predicts the collapse of the Platform for Privacy Preferences Protocol. However, we also find theoretical and empirical grounds to predict that government intervention can drive adoption of the Platform on the server side, which may in turn bootstrap user adoption of this technology.