Emory Univesity Professor Has Views About ChoicePoint

ChoicePoint is in the business of aggregating information about consumers.
As a result of theft, ChoicePoint and other firms in this business are under
attack. For example, The Atlanta Journal-Constitution in a recent editorial
has suggested that companies such as ChoicePoint should be prohibited “from
warehousing personal information in the first place.” (“ChoicePoint’s offer
not enough” @issue April 1.)

This is a fairly bizarre suggestion. Consumers are familiar with credit
reporting agencies and can observe the benefits of these agencies. For
example, it is possible to get a credit report and finance major purchases
such as automobiles within minutes.

Firms such as ChoicePoint are less visible, but equally useful. For example,
they make it possible to purchase insurance quickly and with relatively
little paperwork. Similarly, they reduce the cost and increase the speed of
background checks for employment, apartment rental, and numerous other day
to day transactions. The reduction in hassles and increase in speed is
something that directly benefits consumers. It may appear that the reduction
benefits companies and does no good to consumers.

The Atlanta newspaper refers to making commerce more efficient, implying
that the benefits are to businesses. But economists know that in competitive
industries (and even in non-competitive industries), reductions in costs are
passed on to consumers, so that the cost of goods and services that involve
personal information are reduced. If the AJC recommendations were adopted,
it would take us longer and cost more to do business of all sorts. Increased
costs would be direct, in the form of additional prices for goods and
services in markets where information is valuable. They would also be
indirect, as the wrong people would be selected in many ways.

For example, access to records for matters such as employment leads to
increases, not reductions, in security. By reducing the cost and increasing
the ease of background checks, ChoicePoint makes it less likely that felons
will obtain jobs requiring trust, or that child molesters will get jobs with
access to children. Costs of mismatches of people and jobs, or of increased
insurance premiums because of worse sorting of risks, are subtle and hidden,
but would be real and substantial.

Moreover, ChoicePoint is not unique in having data stolen. Recently, we know
that the University of California had about 160,000 names stolen in two
separate incidents. Theft of data is a serious problem in today’s world, but
forbidding the use of data to avoid theft is not a useful solution. Cars are
routinely stolen and stolen cars are sometimes used in the commission of
additional crimes, but no one advocates outlawing cars to avoid such misuse.

Problems of information theft are serious, but banning the use of
information is not a solution. Firms such as ChoicePoint might make access
to information more difficult in order to deter theft, but this will also
have costs. Information was stolen from ChoicePoint by criminals claiming to
be new firms. If as a result it becomes more difficult for new businesses to
purchase information from firms like ChoicePoint about potential customers
or suppliers, then entry into markets will be reduced.

Economists know that facilitating entry is one of the best ways to keep
consumer prices low, so making entry more difficult will have an unseen but
substantial effect on consumer prices.

One remedy is to penalize the real culprits in this matter. Increased
penalties for actual theft of information of all sorts make sense. Since it
may be difficult to catch these thieves, we must consider more substantial
penalties to provide adequate deterrence. But penalizing victims of theft
such as ChoicePoint will not improve matters, and will make all of us poorer.

Paul H. Rubin is a professor of economics and law at Emory University and
author of “Privacy and the Commercial Use of Personal Information.”