The Economics of Financial Privacy: To Opt Out or Opt in?

Abstract

The Gramm-Leach-Bliley Act of 1999 mandates that a financial institution seeking to share nonpublic customer information with third parties is required to give its customers an opportunity to prevent information sharing, or opt out. Privacy advocates have argued for a more stringent opt in provision explicit consent before sharing personal information about them. Economists view financial privacy as one of a bundle of characteristics of the service an institution offers. This straightforward insight implies that, regardless of whether opt-out or opt-in is the legal standard, competitive markets should deliver an appropriate desire for privacy and the economic value of information sharing.