"The use of such data permits firms to target their marketing messages to consumers‘ interests, pays for a wealth of content on the Internet, and helps protect consumers from a variety of online threats," said the paper, released Monday by the Technology Policy Institute (TPI), an antiregulation think tank. "It forms the basis for many of the business models that are fueling the growth of the Internet."

Privacy groups want a "free lunch" online, with strong privacy controls that make it tougher for advertising to work online, the paper said. "Privacy advocates have provided little detail on the benefits of more privacy and have typically ignored the costs or trade-offs associated with increasing privacy," the paper said.

Data collection delivers ads that people want and that advertising pays for a multitude of free services online, said , co-authored by TPI President Thomas Lenard and Emory University law and economics professor Paul Rubin.

In addition, collection of personal data can help Web sites protect users, through the logging of bad behavior such as malware or phishing attacks, the paper said. Search engines collect anonymous consumer information to deliver better searches and protect against click fraud, the authors wrote.

While some critics say the collection of personal data has been linked with identity theft, there's little evidence of that happening, Lenard added. "I think [public] policy should be based on evidence of real harms to consumers, and there is actually very little evidence of that," he said. "Things like identity theft are already illegal, but there is also really no evidence that limiting the use of information for legitimate commercial purposes will reduce identity theft."