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Privacy Protection and Technology Diffusion: The Case of Electronic Medical Records

Some policymakers argue that consumers need legal protection of their privacy before they adopt interactive technologies. Others contend that privacy regulations impose costs that deter adoption. We contribute to this growing debate by quantifying the effect of state privacy regulation on the diffusion of Electronic Medical Record technology (EMR). EMR allows medical providers to store and exchange patient information using computers rather than paper records. Hospitals may not adopt EMR if patients feel their privacy is not safeguarded by regulation. Alternatively, privacy protection may inhibit adoption if hospitals cannot benefit from exchanging patient information with one another. In the US, medical privacy laws that restrict the ability of hospitals to disclose patient information vary across time and across states. We exploit this variation to explore how privacy laws affect whether hospitals adopt EMR. Our results suggest that inhibition of EMR's network benefits reduces hospital adoption by up to 25 percent. We find similar evidence when we control for the endogeneity of state laws using variation in signups to the Do Not Call list.

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File URL: http://www.NETinst.org/Miller-Tucker_07-16.pdf
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Paper provided by NET Institute in its series Working Papers with number 07-16.

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Length: 39 pages
Date of creation: Sep 2007
Date of revision: Sep 2007
Handle: RePEc:net:wpaper:0716
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Leemore S. Dafny, 2005. "How Do Hospitals Respond to Price Changes?," American Economic Review, American Economic Association, vol. 95(5), pages 1525-1547, December.
  2. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
  3. Marc Rysman, 2004. "Competition Between Networks: A�Study of the Market for Yellow�Pages," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 483-512, 04.
  4. Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
  5. Posner, Richard A, 1981. "The Economics of Privacy," American Economic Review, American Economic Association, vol. 71(2), pages 405-09, May.
  6. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  7. Daron Acemoglu & Amy Finkelstein, 2008. "Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 837-880, October.
  8. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
  9. Philipp Schmidt-Dengler, 2006. "The Timing of New Technology Adoption: The Case of MRI," 2006 Meeting Papers 3, Society for Economic Dynamics.
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