"Regulation should be undertaken only if a market is not functioning properly and if the benefits of new measures outweigh their costs," states the 56-page report, "In Defense of Data." "Our analysis suggests that proposals to restrict the amount of information available would not yield net benefits for consumers."

To a large extent, the paper reiterates arguments that online ad companies first made a decade ago: Targeted ads are more relevant to consumers, subsidize free content, and pose no threat to privacy because they are anonymous.

"More privacy implies less information available for producing benefits for consumers," state the writers, economists Thomas M. Lenard and Paul H. Rubin. Lenard has previously worked in the Office of Management and Budget and the Federal Trade Commission.

The report comes as policymakers are calling for increased privacy protections online. Rep. Rick (D-Va.), chairman of the House Communications, Technology and Internet Subcommittee, recently vowed to introduce new legislation. In addition, FTC chair Jon Leibowitz has said the industry should do a better job of notifying Web users about online ad targeting and allowing them to opt out. In one recent interview, Leibowitz went even further and urged companies to obtain users' explicit opt-in consent.

Mike Zaneis, vice president for public policy at the Interactive Advertising Bureau, praises the report for highlighting the value of online advertising. "It's good to have experts and think tanks identify the fact that you can't take information out of the information economy without harming the ecosystem," he says.

But Zaneis adds that Web companies can institute privacy measures without hurting their bottom line. "It's absolutely in our interest to meet consumers' privacy expectations," he says.

Alissa Cooper, chief computer scientist at the digital rights group Center for Democracy & Technology, points out that the paper doesn't differentiate between collection of sensitive data and other types of information, but rather, "lumps all data collection into a single bucket."

The FTC, in its recent guidelines for behavioral advertising, said that companies should obtain users' explicit consent before collecting sensitive data such as financial or health information.

The report also goes further than many industry insiders to argue that even voluntary self-regulation has a potential downside. "While self-regulation is more flexible than imposed regulation, it can still be quite rigorous," the report says. The authors warn that companies that agree to follow self-regulatory principles could be subject to Federal Trade Commission enforcement actions if they don't honor the policies.

In addition, they assert, a common set of self-regulatory standards would result in more uniform privacy policies -- which they view as a negative because those policies would leave some consumers unhappy. "Firms would agree to a common privacy regime that might be consistent with the preferences of a subset of consumers, but would likely not satisfy the preferences of the majority of consumers."

Separately, another think tank, the Future of Privacy Forum (initially funded by AT&T), said Tuesday it had tapped ad agency WPP to devise new ways of informing Web users about behavioral advertising, or tracking people and serving ad-based sites visited.

"We thought it might be very useful to actually ask creative and communications experts to do this -- rather than lawyers, who have done their most to complicate privacy policies," says Jules Polonetsky, co-chair and director of the Future of Privacy Forum.

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