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Privacy, property rights and efficiency: The economics of privacy as secrecy

  • Benjamin Hermalin


  • Michael Katz


There is a long history of governmental efforts to protect personal privacy and strong debates about the merits of such policies. A central element of privacy is the ability to control the dissemination of personally identifiable data to private parties. Posner, Stigler, and others have argued that privacy comes at the expense of allocative efficiency. Others have argued that privacy issues are readily resolved by proper allocation of property rights to control information. Our principal findings challenge both views. We find: (a) privacy can be efficient even when there is no “taste” for privacy per se, and (b) to be effective, a privacy policy may need to ban information transmission or use rather than simply assign individuals control rights to their personally identifiable data. Copyright Springer Science + Business Media, LLC 2006

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Article provided by Springer in its journal Quantitative Marketing and Economics.

Volume (Year): 4 (2006)
Issue (Month): 3 (September)
Pages: 209-239

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Handle: RePEc:kap:qmktec:v:4:y:2006:i:3:p:209-239
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  1. Alessandro Pavan, 2004. "On the Optimality of Privacy in Sequential Contracting," Theory workshop papers 658612000000000067, UCLA Department of Economics.
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  5. Charles M. Kahn & James J. McAndrews & William Roberds, 2000. "A theory of transactions privacy," FRB Atlanta Working Paper 2000-22, Federal Reserve Bank of Atlanta.
  6. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
  7. 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 461-83, December.
  8. Levin, Jonathan, 2001. "Information and the Market for Lemons," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 657-66, Winter.
  9. Posner, Richard A, 1981. "The Economics of Privacy," American Economic Review, American Economic Association, vol. 71(2), pages 405-09, May.
  10. Taylor, Curt, 2004. "Privacy and Information Acquisition in Competitive Markets," Berkeley Olin Program in Law & Economics, Working Paper Series qt5hk0k89w, Berkeley Olin Program in Law & Economics.
  11. 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 561-74, September.
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