The Economics and Regulation of Financial Privacy

Transcription

1 The Economics and Regulation of Financial Privacy

2 Contributions to Economics Further volumes of this series can be found at our homepage. Guido S. Merzoni Strategic Delegation in Firms and in the Trade Union ISBN Jan B. Kune On Global Aging ISBN Sugata Marjit, Rajat Acharyya International Trade, Wage Inequality and the Developing Economy ISBN Francesco C. Billari/Alexia Prskawetz (Eds.) Agent-Based Computational Demography ISBN Georg Bol/Gholamreza Nakhaeizadeh/ Svetlozar T. Rachev/Thomas Ridder/ Karl-Heinz Vollmer (Eds.) Credit Risk ISBN Christian MuÈller Money Demand in Europe ISBN Cristina Nardi Spiller The Dynamics of the Price Structure and the Business Cycle ISBN Michael BraÈuninger Public Debt and Endogenous Growth ISBN Brigitte Preissl/Laura Solimene The Dynamics of Clusters and Innovation ISBN Markus Gangl Unemployment Dynamics in the United States and West Germany ISBN Pablo Coto-MillaÂn (Ed.) Essays on Microeconomics and Industrial Organisation, 2nd Edition ISBN Wendelin Schnedler The Value of Signals in Hidden Action Models ISBN Carsten SchroÈder Variable Income Equivalence Scales ISBN Wilhelm J. Meester Locational Preferences of Entrepreneurs ISBN X Russel Cooper/Gary Madden (Eds.) Frontiers of Broadband, Electronic and Mobile Commerce ISBN Sardar M. N. Islam Empirical Finance ISBN Jan-Egbert Sturm/Timo WollmershaÈuser (Eds.) Ifo Survey Data in Business Cycle and Monetary Policy Analysis ISBN Bernard Michael Gilroy/Thomas Gries/ Willem A. Naude (Eds.) Multinational Enterprises, Foreign Direct Investment and Growth in Africa ISBN X GuÈnter S. Heiduk/Kar-yiu Wong (Eds.) WTO and World Trade ISBN Emilio Colombo/Luca Stanca Financial Market Imperfections and Corporate Decisions ISBN Birgit Mattil Pension Systems ISBN Francesco C. Billari et al. (Eds.) Agent-Based Computational Modelling ISBN X Kerstin Press A Life Cycle for Clusters? ISBN Russel Cooper et al. (Eds.) The Economics of Online Markets and ICT Networks ISBN Renato Giannetti/Michelangelo Vasta (Eds.) Evolution of Italian Enterprises in the 20th Century ISBN Ralph Setzer The Politics of Exchange Rates in Developing Countries ISBN Dora BorbeÂly Trade Specialization in the Enlarged European Union ISBN X Iris A. Hauswirth Effective and Efficient Organisations? ISBN Marco Neuhaus The Impact of FDI on Economic Growth ISBN

3 Nicola Jentzsch The Economics and Regulation of Financial Privacy An International Comparison of Credit Reporting Systems With 45 Figures and 40 Tables Physica-Verlag A Springer Company

4 Series Editors Werner A. Mçller Martina Bihn Author Nicola Jentzsch Freie Universitåt Berlin John F. Kennedy Institut Lansstraûe 7± Berlin, Germany ISBN 10 ISBN Physica-Verlag Heidelberg New York Physica-Verlag Heidelberg New York This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Physica-Verlag. Violations are liable for prosecution under the German Copyright Law. Physica-Verlag is a part of Springer Science+Business Media springer.com Physica-Verlag Heidelberg 2006 Printed in Germany The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Typesetting: Camera ready by the author Cover: Erich Kirchner, Heidelberg Production: LE-T E X, Jelonek, Schmidt & Væckler GbR, Leipzig SPIN Printed on acid-free paper ± 134/3100 ±

5 To my mum for her support, patience and love.

6 Acknowledgements Over the course of the research I was supported by a number of people to whom I would like to express my gratitude. I am deeply indebted to Mr. Joseph C. Fox, Mrs. Alison B. Fox and the Max Kade Foundation for the Fox International Fellowship at the Yale University. The research stipend enabled me to expand the present analysis from 2 to 100 countries and therefore to gain a global perspective. For the guidance and review I would like to thank Professor Dr. Carl-Ludwig Holtfrerich. I am also thankful to the World Bank and the European Credit Research Institute at the Centre for European Policy Studies. Both institutions financially supported this and related research. I am also deeply indebted to the Schufa Holding AG. I would like to thank all my interview partners and contact persons. Institutions that were especially helpful were the European Commission, the U.S. Federal Trade Commission, the U.S. Congressional Research Service, the American Antitrust Institute, the Consumer Data Industry Association and the National Credit Reporting Association. Further, I would like to thank the Federal Reserve Bank of Philadelphia. I am indebted to the many colleagues at central banks around the world who provided me with data and helpful explanations. Moreover, I would like to thank all the Universities, research institutions and government bodies that invited me to conferences or opened the opportunity for me to discuss my research with a public audience. This book has greatly benefited from these discussions. Lastly, I would like to thank my friends. Nadine and Nicole provided excellent research assistance for this project or related ones. And I thank Arnd and Nataliya for the critical discussions that were always productive. Without my best friends, however, this research would not even exist. Claudia and Alex supported me in the decision to go forward with this project. I would like to thank both for the confidence, the inspiration and true friendship.

7 Contents 1 Introduction 1 2 The Theory of Information and Privacy Competition in Information Markets Information Goods and Property Rights Network Economics Supply-side Characteristics Demand-side Characteristics Markets for Personal Information Intellectual Property Rights in Personal Data Negative Externalities in Information Markets Imperfect Appropriation of Personal Information Concentration of Information Power Versioning and Purpose Creep Microeconomics of Information Information Economics The Microeconomics of Privacy Basic Interactions in Credit Reporting 59 3 The Institutions of Credit Reporting The History of Credit Reporting Agencies International Overview United States European Overview Trans-national Reporting Schemes The Regulation of Credit Reporting International Overview: Data Protection Laws The Regulatory Regime in the U.S Regulatory Regimes in the Europe Comparison of U.S. and EU Approaches to Privacy International Initiatives 161

8 x Contents 4 Economic Effects of Credit Reporting Credit Scoring Micro- and Macroeconomic Evidence on Data Protection Data Protection and Credit Scoring International Differences in Credit Scoring Macroeconomic Evidence on Credit Reporting Estimating the Effects of Data Protection The Sample, the Variables and the Index Empirical Evidence on Credit Reporting Regulation Evidence on Information Inaccuracies What Do We Know about Mistakes in Credit Reports? Origin and Impact of Credit Report Inaccuracies Lessons for Credit Reporting Regulation Conclusions 257 References 261 Glossary of Credit Terms 285 Appendix 289

9 List of Abbreviations ACB BPE CCRRA CDIA COE CPII CRECA CNIL DIW DWH ECOA EC EEC EU EU DPD FACTA FCRA FICP FED FTC FSMA GATS GATT GDP GNP ICRG IF ITU KS LEI OECD OEEC NBER Associated Credit Bureaus Bayesian Perfect Equilibrium Consumer Credit Reporting Reform Act Consumer Data Industry Association Council of Europe (Convention) Centrale Professionelle d Information sur les Impayés Consumer Reporting Employment Clarification Act Commission Nationale de l'informatique et des Libertés Deutsches Institut fuer Wirtschaftsforschung Durbin-Wu-Hausman test Equal Credit Opportunity Act European Communities European Economic Community European Union European Data Protection Directive Fair and Accurate Credit Transactions Act Fair Credit Reporting Act Fichier National des Incidents de Remboursement des Crédits aux Particuliers Federal Reserve Board Federal Trade Commission Financial Services Modernization Act General Agreement of Trade in Services General Agreement on Tariffs and Trade Gross Domestic Product Gross National Product International Country Risk Guide Information Furnisher Tasks International Telecommunication Union Kolmogorov-Smirnov test Leading Economic Indicators Organization for Economic Cooperation and Development Organization for European Economic Co-operation National Bureau of Economic Research

10 xii List of Abbreviations NE OB OLS PBE PCR PRCR PR RMCR SA SC SPE TBDF TMS TRIPS UN WTO Nash Equilibrium Obligations to Credit Bureaus Ordinary Least Squares Perfect Bayesian Equilibrium Public Credit Registries Private Credit Bureaus Property Rights to Information Residential Mortgage Credit Report Supervisory Authority Sanctions Sub-game Perfect Equilibrium Trans-border Data Flows The Mortgage Score Trade-Related Aspects of Intellectual Property Rights United Nations World Trade Organization