Why we can't be bothered to read privacy policies models of privacy economics as a lemons market

Consumers want to interact with web sites, but they also want to keep control of their private information. Asymmetric information about whether web sites will sell private information or not leads to a lemons market for privacy. We discuss privacy policies as signals in a lemons market and ways in which current realizations of privacy policies may fail to be effective signals. As a result of these shortcomings, we consider a "lemons market with testing," where consumers have a cost of determining whether a site meets their privacy requirement. Our model explains empirical data concerning privacy policies and privacy seals. We end by discussing cyclic instability in the number of web sites that sell consumer information.