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Data Privacy and Temptation

Author

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  • Zhuang Liu
  • Michael Sockin
  • Wei Xiong

Abstract

This paper derives a preference for data privacy from consumers' temptation utility. This approach facilitates a welfare analysis of different data privacy regulations, such as the GDPR enacted by the European Union and the CCPA enacted by the state of California, when a fraction of the consumers may succumb to targeted advertising of temptation goods. While sharing consumer data with firms improves firms' matching efficiency of normal consumption goods, it also exposes weak-willed consumers to temptation goods. Despite that the GDPR and the CCPA give each consumer the choice to opt in or out of data sharing, these regulations may not provide sufficient protection for severely tempted consumers because of a negative externality in which the opt-in decision of some consumers reduces the anonymity of those who opt out. Our analysis also shows that the default choices instituted by the GDPR and the CCPA can lead to sharply different outcomes.

Suggested Citation

  • Zhuang Liu & Michael Sockin & Wei Xiong, 2020. "Data Privacy and Temptation," NBER Working Papers 27653, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27653
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. He, Zhiguo & Huang, Jing & Zhou, Jidong, 2023. "Open banking: Credit market competition when borrowers own the data," Journal of Financial Economics, Elsevier, vol. 147(2), pages 449-474.
    2. Cong, Lin William & Wei, Wenshi & Xie, Danxia & Zhang, Longtian, 2022. "Endogenous growth under multiple uses of data," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    3. Lin William Cong & Danxia Xie & Longtian Zhang, 2021. "Knowledge Accumulation, Privacy, and Growth in a Data Economy," Management Science, INFORMS, vol. 67(10), pages 6480-6492, October.
    4. Jean Tirole, 2023. "Competition and the Industrial Challenge for the Digital Age," Post-Print hal-04464905, HAL.
    5. Rod Garratt & Michael Junho Lee, 2021. "Monetizing Privacy," Staff Reports 958, Federal Reserve Bank of New York.

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    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management

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