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RFID in the Retail Sector: A Methodology for Analysis of Policy Proposals and Their Implications for Privacy, Economic Efficiency and Security

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Abstract:

Radio Frequency Identification (RFID) is a low cost and potentially covert method of remotely retrieving stored information. Broad recent growth of RFID applications, especially in the retail sector, has raised several specific privacy and data protection concerns derived from the potential that RFID offers for surreptitious monitoring and the linking of personal and obscure or private information into large databases. The result of these concerns has been an active policy debate, with legislative proposals at the U.S. state and federal levels, as well as in Europe. The author first constructs a qualitative framework for analyzing these policies, which provides a description of the key stakeholders in the debate and the issues concerning each. He then develops a simple economic model showing that all the assessed policies involve substantial tradeoffs in firms’ and individual behaviors and that a true understanding of uncertainties such as market structure and individual preferences about privacy is critical in assessing the impact of any policy.