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Privacy and Endogenous Monitoring Choice When Private Information is a Public Good

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  • Stefan Dodds

    ()
    (Department of Economics, Queen's University)

Abstract

This paper examines why economies endow agents with a degree of personal privacy, even when (a) "no privacy" is ex-post (Pareto) efficient, and (b) a costless monitoring technology exists. A government can provide more of a public good only by identifying "valuable" agents from a population of n. All agents report their type to the government --- truthfully or not --- unsure if they, or others, are being observed. When n is small, it is shown that increasing monitoring effectiveness can actually lead to ex-post inefficiency. Political equilibria are also characterized, where agents vote to constrain the government's monitoring effectivenes but not its ability to levy penalties or rewards. When n is large, all such equilibria are efficient; however, a utilitarian government may not implement taxes to reward honest reporting, nor impose penalties to punish it, even when these options ensure full revelation. Legislating a "right to privacy", by contrast, is always inefficient.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1010.pdf
File Function: First version 2002
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1010.

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Length: 35 pages
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:qed:wpaper:1010

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Related research

Keywords: Privacy; Public Goods; Tagging;

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References

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  1. Beck, Paul J & Davis, Jon S & Jung, Woon-Oh, 2000. " Taxpayer Disclosure and Penalty Laws," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(2), pages 243-72.
  2. Chander, Parkash & Wilde, Louis L, 1998. "A General Characterization of Optimal Income Tax Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 165-83, January.
  3. Parsons, Donald O., 1996. "Imperfect 'tagging' in social insurance programs," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 183-207, October.
  4. Richard A. Posner, 1980. "The Economics of Privacy," University of Chicago - George G. Stigler Center for Study of Economy and State 16, Chicago - Center for Study of Economy and State.
  5. Stephen Morris, 1999. "Political Correctness," Cowles Foundation Discussion Papers 1242, Cowles Foundation for Research in Economics, Yale University.
  6. Robin Boadway & Motohiro Sato, 2000. "The Optimality of Punishing Only the Innocent: The Case of Tax Evasion," International Tax and Public Finance, Springer, vol. 7(6), pages 641-664, December.
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