IDEAS home Printed from https://ideas.repec.org/a/aea/jeclit/v54y2016i2p442-92.html
   My bibliography  Save this article

The Economics of Privacy

Author

Listed:
  • Alessandro Acquisti
  • Curtis Taylor
  • Liad Wagman

Abstract

This article summarizes and draws connections among diverse streams of theoretical and empirical research on the economics of privacy. We focus on the economic value and consequences of protecting and disclosing personal information, and on consumers' understanding and decisions regarding the trade-offs associated with the privacy and the sharing of personal data. We highlight how the economic analysis of privacy evolved over time, as advancements in information technology raised increasingly nuanced and complex issues. We find and highlight three themes that connect diverse insights from the literature. First, characterizing a single unifying economic theory of privacy is hard, because privacy issues of economic relevance arise in widely diverse contexts. Second, there are theoretical and empirical situations where the protection of privacy can both enhance and detract from individual and societal welfare. Third, in digital economies, consumers' ability to make informed decisions about their privacy is severely hindered because consumers are often in a position of imperfect or asymmetric information regarding when their data is collected, for what purposes, and with what consequences. We conclude the article by highlighting some of the ongoing issues in the privacy debate of interest to economists.

Suggested Citation

  • Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, vol. 54(2), pages 442-492, June.
  • Handle: RePEc:aea:jeclit:v:54:y:2016:i:2:p:442-92
    Note: DOI: 10.1257/jel.54.2.442
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/articles?id=10.1257/jel.54.2.442
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=FhbhG2QWnNlzKt1-f5-pQ-YbJEMmdFsu
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=_-_qmgU3U-5QxeI4EqcaKAKlwAy3zR4U
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pavan, Alessandro & Calzolari, Giacomo, 2009. "Sequential contracting with multiple principals," Journal of Economic Theory, Elsevier, vol. 144(2), pages 503-531, March.
    2. Bharat Anand & Ron Shachar, 2009. "Targeted advertising as a signal," Quantitative Marketing and Economics (QME), Springer, vol. 7(3), pages 237-266, September.
    3. Randall Lewis & David Reiley, 2014. "Online ads and offline sales: measuring the effect of retail advertising via a controlled experiment on Yahoo!," Quantitative Marketing and Economics (QME), Springer, vol. 12(3), pages 235-266, September.
    4. Simon P. Anderson & André de Palma, 2012. "Competition for attention in the Information (overload) Age," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 1-25, March.
    5. George J. Stigler, 1980. "An Introduction to Privacy in Economics and Politics," University of Chicago - George G. Stigler Center for Study of Economy and State 10, Chicago - Center for Study of Economy and State.
    6. Chen, Yuxin & Zhang, Z. John, 2009. "Dynamic targeted pricing with strategic consumers," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 43-50, January.
    7. Curtis R. Taylor, 2004. "Consumer Privacy and the Market for Customer Information," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 631-650, Winter.
    8. Stigler, George J., 2011. "Economics of Information," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    9. Greg Shaffer & Z. John Zhang, 2002. "Competitive One-to-One Promotions," Management Science, INFORMS, vol. 48(9), pages 1143-1160, September.
    10. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    11. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
    12. Van Alstyne Marshall W., 2007. "Curing Spam: Rights, Signals & Screens," The Economists' Voice, De Gruyter, vol. 4(2), pages 1-4, April.
    13. Tatiana Komarova & Denis Nekipelov & Evgeny Yakovlev, 2015. "Estimation of Treatment Effects from Combined Data: Identification versus Data Security," NBER Chapters, in: Economic Analysis of the Digital Economy, pages 279-308, National Bureau of Economic Research, Inc.
    14. Bing Jing, 2011. "Pricing Experience Goods: The Effects of Customer Recognition and Commitment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 451-473, June.
    15. Farrell, Joseph, 1987. "Information and the Coase Theorem," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 113-129, Fall.
    16. Simon Cowan, 2007. "The welfare effects of third-degree price discrimination with nonlinear demand functions," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 419-428, June.
    17. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    18. Margherita Bottero & Giancarlo Spagnolo, 2013. "Limited credit records and market outcomes," Temi di discussione (Economic working papers) 903, Bank of Italy, Economic Research and International Relations Area.
    19. Byung‐Cheol Kim & Jay Pil Choi, 2010. "Customer Information Sharing: Strategic Incentives and New Implications," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 403-433, June.
    20. Timothy Van Zandt, 2004. "Information Overload in a Network of Targeted Communication," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 542-560, Autumn.
    21. Susan Athey & Emilio Calvano & Joshua Gans, 2013. "The Impact of the Internet on Advertising Markets for News Media," NBER Working Papers 19419, National Bureau of Economic Research, Inc.
    22. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
    23. Andrew F. Daughety & Jennifer F. Reinganum, 2010. "Public Goods, Social Pressure, and the Choice between Privacy and Publicity," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 191-221, May.
    24. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    25. Justin P. Johnson, 2013. "Targeted advertising and advertising avoidance," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 128-144, March.
    26. George J. Stigler, 1962. "Information in the Labor Market," NBER Chapters, in: Investment in Human Beings, pages 94-105, National Bureau of Economic Research, Inc.
    27. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
    28. Kahn, Charles M. & Roberds, William, 2008. "Credit and identity theft," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 251-264, March.
    29. Amalia R. Miller & Catherine E. Tucker, 2011. "Encryption and the loss of patient data," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(3), pages 534-556, June.
    30. Kai-Lung Hui & I.P.L. Png, 2005. "The Economics of Privacy," Industrial Organization 0505007, University Library of Munich, Germany, revised 29 Aug 2005.
    31. Thomas Blake & Chris Nosko & Steven Tadelis, 2015. "Consumer Heterogeneity and Paid Search Effectiveness: A Large‐Scale Field Experiment," Econometrica, Econometric Society, vol. 83, pages 155-174, January.
    32. Julia S. Cheney, 2005. "Identity theft: do definitions still matter?," Consumer Finance Institute discussion papers 05-10, Federal Reserve Bank of Philadelphia.
    33. Karim Jamal & Michael Maier & Shyam Sunder, 2003. "Privacy in E‐Commerce: Development of Reporting Standards, Disclosure, and Assurance Services in an Unregulated Market," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 285-309, May.
    34. Nagin, Daniel & Waldfogel, Joel, 1995. "The effects of criminality and conviction on the labor market status of young British offenders," International Review of Law and Economics, Elsevier, vol. 15(1), pages 109-126, January.
    35. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
    36. Liran Einav & Mark Jenkins & Jonathan Levin, 2013. "The impact of credit scoring on consumer lending," RAND Journal of Economics, RAND Corporation, vol. 44(2), pages 249-274, June.
    37. Marcus Asplund & Rickard Eriksson & Niklas Strand, 2008. "Price Discrimination In Oligopoly: Evidence From Regional Newspapers," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 333-346, June.
    38. Alexandre de Corniere, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    39. Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, vol. 100(2), pages 603-607, May.
    40. Gunter J. Hitsch & Ali Hortaçsu & Dan Ariely, 2010. "Matching and Sorting in Online Dating," American Economic Review, American Economic Association, vol. 100(1), pages 130-163, March.
    41. J. Miguel Villas-Boas, 2004. "Price Cycles in Markets with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 486-501, Autumn.
    42. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
    43. Khim-Yong Goh & Kai-Lung Hui & Ivan P. L. Png, 2015. "Privacy and Marketing Externalities: Evidence from Do Not Call," Management Science, INFORMS, vol. 61(12), pages 2982-3000, December.
    44. Jin‐Hyuk Kim & Liad Wagman & Abraham L. Wickelgren, 2019. "The impact of access to consumer data on the competitive effects of horizontal mergers and exclusive dealing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(3), pages 373-391, June.
    45. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, June.
    46. Mary J. Culnan & Pamela K. Armstrong, 1999. "Information Privacy Concerns, Procedural Fairness, and Impersonal Trust: An Empirical Investigation," Organization Science, INFORMS, vol. 10(1), pages 104-115, February.
    47. Tiffany White & Debra Zahay & Helge Thorbjørnsen & Sharon Shavitt, 2008. "Getting too personal: Reactance to highly personalized email solicitations," Marketing Letters, Springer, vol. 19(1), pages 39-50, March.
    48. Joel Waldfogel, 1994. "The Effect of Criminal Conviction on Income and the Trust "Reposed in the Workmen"," Journal of Human Resources, University of Wisconsin Press, vol. 29(1), pages 62-81.
    49. Taylor, Curtis & Wagman, Liad, 2014. "Consumer privacy in oligopolistic markets: Winners, losers, and welfare," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 80-84.
    50. Yuncheol Jeong & Masayoshi Maruyama, 2009. "Commitment to a strategy of uniform pricing in a two-period duopoly with switching costs," Journal of Economics, Springer, vol. 98(1), pages 45-66, September.
    51. J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
    52. Mark Armstrong & John Vickers & Jidong Zhou, 2009. "Consumer Protection and the Incentive to Become Informed," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 399-410, 04-05.
    53. Naresh K. Malhotra & Sung S. Kim & James Agarwal, 2004. "Internet Users' Information Privacy Concerns (IUIPC): The Construct, the Scale, and a Causal Model," Information Systems Research, INFORMS, vol. 15(4), pages 336-355, December.
    54. Amalia R. Miller & Catherine Tucker, 2009. "Privacy Protection and Technology Diffusion: The Case of Electronic Medical Records," Management Science, INFORMS, vol. 55(7), pages 1077-1093, July.
    55. Dirk Bergemann & Alessandro Bonatti, 2011. "Targeting in advertising markets: implications for offline versus online media," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 417-443, September.
    56. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-574, September.
    57. Leslie K. John & Alessandro Acquisti & George Loewenstein, 2011. "Strangers on a Plane: Context-Dependent Willingness to Divulge Sensitive Information," Journal of Consumer Research, Oxford University Press, vol. 37(5), pages 858-873.
    58. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    59. Benjamin Edelman & Micahel Luca, 2014. "Digital Discrimination: The Case of Airbnb.com," Harvard Business School Working Papers 14-054, Harvard Business School.
    60. Sasha Romanosky & Rahul Telang & Alessandro Acquisti, 2011. "Do data breach disclosure laws reduce identity theft?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(2), pages 256-286, March.
    61. Michael Kearns & Mallesh M. Pai & Aaron Roth & Jonathan Ullman, 2014. "Mechanism Design in Large Games: Incentives and Privacy," American Economic Review, American Economic Association, vol. 104(5), pages 431-435, May.
    62. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    63. Jeremy M. Burke & Curtis R. Taylor & Liad Wagman, 2012. "Information Acquisition in Competitive Markets: An Application to the US Mortgage Market," American Economic Journal: Microeconomics, American Economic Association, vol. 4(4), pages 65-106, November.
    64. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
    65. Liad Wagman & Vincent Conitzer, 2014. "False-name-proof voting with costs over two alternatives," International Journal of Game Theory, Springer;Game Theory Society, vol. 43(3), pages 599-618, August.
    66. Alexandre de Corniere & Romain De Nijs, 2013. "Online Advertising and Privacy," Economics Series Working Papers 650, University of Oxford, Department of Economics.
    67. Vincent Conitzer & Curtis R. Taylor & Liad Wagman, 2012. "Hide and Seek: Costly Consumer Privacy in a Market with Repeat Purchases," Marketing Science, INFORMS, vol. 31(2), pages 277-292, March.
    68. Alessandro Acquisti & Leslie K. John & George Loewenstein, 2013. "What Is Privacy Worth?," The Journal of Legal Studies, University of Chicago Press, vol. 42(2), pages 249-274.
    69. Jin-Hyuk Kim & Liad Wagman, 2015. "Screening incentives and privacy protection in financial markets: a theoretical and empirical analysis," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 1-22, March.
    70. Susan Athey & Joshua S. Gans, 2010. "The Impact of Targeting Technology on Advertising Markets and Media Competition," American Economic Review, American Economic Association, vol. 100(2), pages 608-613, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yongmin Chen & Xinyu Hua & Keith E. Maskus, 2020. "International Protection of Consumer Data," CESifo Working Paper Series 8391, CESifo.
    2. Morlok, Tina & Matt, Christian & Hess, Thomas, 2017. "Privatheitsforschung in den Wirtschaftswissenschaften: Entwicklung, Stand und Perspektiven," Working Papers 1/2017, University of Munich, Munich School of Management, Institute for Information Systems and New Media.
    3. Jin-Hyuk Kim & Liad Wagman, 2015. "Screening incentives and privacy protection in financial markets: a theoretical and empirical analysis," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 1-22, March.
    4. Florian Hoffmann & Roman Inderst & Marco Ottaviani, 2013. "Hypertargeting, Limited Attention, and Privacy: Implications for Marketing and Campaigning," Working Papers 479, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Oz Shy & Rune Stenbacka, 2016. "Customer Privacy and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 539-562, September.
    6. Florian Hoffmann & Roman Inderst & Marco Ottaviani, 2020. "Persuasion Through Selective Disclosure: Implications for Marketing, Campaigning, and Privacy Regulation," Management Science, INFORMS, vol. 66(11), pages 4958-4979, November.
    7. Rodrigo Montes & Wilfried Sand-Zantman & Tommaso Valletti, 2019. "The Value of Personal Information in Online Markets with Endogenous Privacy," Management Science, INFORMS, vol. 65(3), pages 1342-1362, March.
    8. Jin, Ginger Zhe & Wagman, Liad, 2021. "Big data at the crossroads of antitrust and consumer protection," Information Economics and Policy, Elsevier, vol. 54(C).
    9. Carroni, Elias & Ferrari, Luca & Righi, Simone, 2019. "The price of discovering your needs online," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 317-330.
    10. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    11. Loertscher, Simon & Marx, Leslie M., 2020. "Digital monopolies: Privacy protection or price regulation?," International Journal of Industrial Organization, Elsevier, vol. 71(C).
    12. Johan N. M. Lagerlöf, 2018. "Surfing Incognito: Welfare Effects of Anonymous Shopping," Discussion Papers 18-13, University of Copenhagen. Department of Economics.
    13. Yiquan Gu & Leonardo Madio & Carlo Reggiani, 2019. "Data Brokers Co-Opetition," CESifo Working Paper Series 7523, CESifo.
    14. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 115-129, March.
    15. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, December.
    16. Zhijun Chen & Chongwoo Choe & Noriaki Matsushima, 2020. "Competitive Personalized Pricing," Management Science, INFORMS, vol. 66(9), pages 4003-4023, September.
    17. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    18. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," PSE Working Papers hal-01226250, HAL.
    19. Romain de Nijs, 2015. "Behavior-based price discrimination and customer information sharing," Working Papers hal-01226250, HAL.
    20. Florian Morath & Johannes Münster, 2018. "Online Shopping and Platform Design with Ex Ante Registration Requirements," Management Science, INFORMS, vol. 64(1), pages 360-380, January.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • I10 - Health, Education, and Welfare - - Health - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jeclit:v:54:y:2016:i:2:p:442-92. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.