Finding a Balance
he European Union took the lead in implementing stringent privacy protections for consumer data when it rolled out the EU General Data Protection Regulation (GDPR) in May 2018. With its strict rules spelling out how personally identifiable information about EU residents can be gathered and used, GDPR has become a model that other countries, including the United States, are looking at closely as they grapple with their own approaches to data privacy.
What are the economic consequences of GDPR, particularly for tech companies that rely on access to streams of information about consumers to fuel their businesses? That question intrigues Liad Wagman, associate professor of economics at Stuart School of Business, whose prolific research agenda over the past decade has focused on privacy and the economics of information.
To get some answers, Wagman teamed up with Jian Jia (Ph.D. MSC student) and University of Maryland Professor of Economics Ginger Zhe Jin. They took a deep dive into data on all technology-venture related activity in the EU and the U.S. to investigate the impact during the first few months of GDPR on technology venture investment in Europe. What they discovered was an overall decline in venture funding, especially for companies less than three years old.
“There’s a concern that these kind of regulations can hurt innovation,” at least in the short run, says Wagman. “They can hurt jobs and they can hurt new venture creation, so we’ve got to be careful how we implement them.”
When the group presented its findings in a research paper on SSRN titled “The Short-Run Effects of GDPR on Technology Venture Investment,” the response was immediate. Invitations poured in from government officials, policymakers, and academics on both sides of the Atlantic eager to learn more. Wagman has participated in U.S. Federal Trade Commission hearings, met with European regulators, spoken at conferences in the U.S. and Europe, and corresponded with the White House Council of Economic Advisors.
Lawmakers and government agencies are drafting data privacy rules in the U.S., Wagman says, and are paying attention to the potential trade-offs between consumers’ privacy and economic costs. Following his presentation to the FTC, he recalls, commission officials said, “This is exactly what we’re looking for—someone to evaluate the consequences of the GDPR policies so that we can choose a better policy.”
Meanwhile, Wagman and his colleagues continue to add to their body of research on the effects of GDPR as they examine the investor, rather than venture, side of the picture and analyze the longer-term effects of the regulations as they unfold over time.