by Bibhudutta Pani
The principles of new institutional economics championed by Nobel laureate economists Douglass North and Oliver Williamson, established that institutional constraints and transaction costs make economic transactions costly, slow, or risky. Douglass and Williamson predicted that it will be upon intermediaries to reduce institutional constraints and transaction costs (together “institutional friction”).
The Digital Personal Data Protection Act (DPDPA) and its Rules rely on this wisdom to enact a construct of ‘consent manager’ that would act as an intermediary to reduce institutional friction in the marketplace of personal data. However, the form of intervention is likely to have unintended limiting effects, such as entrenching license-raj and setting up a framework that is less likely to address consumer interests.
I. What is Institutional Friction?
Institutional frictions arise because real world exchanges happen under:
• Uncertainty – Contracts are incomplete by necessity, which in turn leads to disputes and re-negotiations.
• Information asymmetry – Markets rely on information about quality of goods, credibility of promises, and legal protections. When information is scarce or unreliable, transactions become risky and expensive.
• Opportunistic behaviour- Everyone acts in self-interest “with guile”. Hold-up problems and misrepresentations are expected to occur in real life conditions.
• Cognitive and coordination limits- Very high cost in coordination amongst different stakeholders, risk of leakages exists.
• Poor enforcement mechanisms – Weak courts, corruption, and unclear property rights create friction that discourage trade and investment.
Intermediaries — whether traditional (brokers, wholesalers) or modern (exchanges, rating agencies) — specialise in reducing these frictions.
II. Institutional Frictions in a market for personal data
A market for ‘personal data’ cannot organically emerge and self-organise because it faces high institutional friction. The factors that cause friction in this area are:
Ambiguous Property Right
In the context of data, there are no straight, established answers to common questions that arise in the realm of property right. Questions such as:
- Who owns data? Is it Individuals, platforms, devices or the State?
- Can data be alienated like property?
- Are consent and privacy rights transferable or revocable?
These are notions that are not legislated in the same manner as property rights for land, building, crops or even intellectual property. The body of knowledge and centuries-long cultural practices that have shaped the rights structure (for traditional assets such as land, building or crops) is missing in the case of personal data.
Uncertainty
The degree of ambiguity discussed above, is countered by written contracts. But contracts…
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