Privacy and Information Disclosure: An Economic Analysis of the Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley (GLB) Act is one of many laws passed in the United States and around the world that is designed to protect private information. One of the main directives in this law requires financial institutions to provide customers with a privacy notice that explains how they share their customers’ private information with nonaffiliated third parties. This paper uses the GLB Act as a case study to analyze the arguments for and against a policy that requires firms to issue privacy notices to their customers. The arguments for this policy are based on theories and principles that are fundamental aspects of neoclassical and information economics— namely, complete information, unbounded rationality, and asymmetric information. The arguments against this policy are based on two central principles of behavioral economics—present bias and bounded rationality. This paper also presents an alternative policy and examines its shortcomings before recommending that Congress consider adopting the European Union’s policy on privacy and information disclosure.