This is part two of a series that began on Friday.
The goal of a good electronic-disclosure regime should be to ensure that consumers know what they’re getting and can compare products.
As such, smart disclosure falls into four categories: (1) government release of data it collects on products and services; (2) government release to individuals of their personal data (such as tax returns); (3) government-facilitated electronic disclosure by private sector companies of price or attribute data on products and services; and (4) government-facilitated release to consumers of personal data held by the companies providing the products and services.
So far, successes have come in the first two categories. Sometimes all it takes is for a government agency to find a better way to get information to the citizens it serves. More often the real breakthroughs come when entrepreneurs find innovative ways to package and use government data.
When cities began making the location of trains and buses available in real time, app developers were quick to launch products for commuters. Next steps will include entrepreneurs’ creating apps that use data disclosed by private companies – on labels on pill bottles, for example – to revolutionise the way consumers and businesses make decisions.
It is not a lack of technology that has kept many choice engines from making the leap from beta testing to market disruption. Nor is it lack of demand for information, or lack of hardworking entrepreneurs to implement them. It’s not the price of data storage and processing power; that keeps dropping and algorithms keep getting more powerful. The missing ingredient is easy access to data.
In many contexts, such as choosing the right calling plan, a choice engine needs two kinds of data. The first is the terms of the sale: prices, penalties and so forth. The second is usage data. It is not possible to pick a calling plan without knowing all the ways you use your smartphone and how your behaviour is likely to change when you upgrade to a phone that offers more ways to consume data. Sure enough, entrepreneurs have built choice engines, such as BillShrink, that analyse your cellphone-usage data and provide a cost-saving recommendation for your next contract.
The logical next step is for the pages of fine print that we now call disclosure to be replaced by machine-readable files in standardised formats. Instead of providing microscopic gobbledygook, sellers should be required to report the details of their prices and contractual terms in a manner that choice engines can digest and analyse.
Regarding disclosure of personal data, a useful principle is that if a firm is collecting usage data on an individual, that person has a right to access the data. That is consistent with current efforts to ensure consumer privacy in the US, the UK and elsewhere.
The challenge for policymakers will be to develop measures that improve smart disclosure without imposing significant costs on firms. It makes sense, for example, to start with large, technologically sophisticated companies. The direct costs of compliance for them should be minimal in most cases.