Privacy and Endogenous Monitoring Choice When Private Information is a Public Good
AbstractThis 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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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1010.
Length: 35 pages
Date of creation: Sep 2002
Date of revision:
Privacy; Public Goods; Tagging;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
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Cowles Foundation Discussion Papers
1242, Cowles Foundation for Research in Economics, Yale University.
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