6 Economics of Privacy

There is a large and robust literature on privacy in economics. That literature is generally focused on the value to individuals of being able to conceal private information, like a health condition, from a firm or prospective employer. The challenge to the firm is to design mechanisms, like pricing strategies, that encourage people to disclose private information. For an overview of ideas in this literature, we recommend reading Stigler (1980), Posner (1981), and Hirshleifer (1980), which appeared in an early symposium. Varian (2002) and Acquisti, Taylor, & Wagman (2016) both provide comprehensive surveys at different points in the development of this literature.

Very few papers tie the economics of privacy directly to official statistics. Campbell, Goldfarb, & Tucker (2015) discuss the consequences for firm profits and individual welfare of data privacy restrictions in California, which prevent firms from sharing certain types of mortgage data. Goldfarb & Tucker (2012) discuss shifts in privacy attitudes and their implications for firms. Hsu et al. (2014), address the question of optimal privacy protection from a very similar perspective to Abowd & Schmutte (2019). Finally, Ohm (2010) surveys the economic implications of contemporary threats to data privacy from a legal perspective.

References

Abowd, J. M., & Schmutte, I. M. (2019). An economic analysis of privacy protection and statistical accuracy as social choices. American Economic Review, 109(1), 171–202. https://doi.org/10.1257/aer.20170627

Acquisti, A., Taylor, C., & Wagman, L. (2016). The economics of privacy. Journal of Economic Literature, 54(2), 442–492. https://doi.org/10.1257/jel.54.2.442

Campbell, J., Goldfarb, A., & Tucker, C. (2015). Privacy regulation and market structure. Journal of Economics & Management Strategy, 24(1), 47–73. https://doi.org/10.1111/jems.12079

Goldfarb, A., & Tucker, C. (2012). Shifts in privacy concerns. American Economic Review, 102(3), 349–353. https://doi.org/10.1257/aer.102.3.349

Hirshleifer, J. (1980). Privacy: Its origin, function, and future. The Journal of Legal Studies, 649–664. https://doi.org/10.1086/467659

Hsu, J., Gaboardi, M., Haeberlen, A., Khanna, S., Narayan, A., Pierce, B. C., & Roth, A. (2014). Differential privacy: An economic method for choosing epsilon. 2014 IEEE 27th Computer Security Foundations Symposium, 398–410. https://doi.org/10.1109/CSF.2014.35

Ohm, P. (2010). Broken promises of privacy: Responding to the surprising failure of anonymization. UCLA Law Review, 57, 1701.

Posner, R. A. (1981). The economics of privacy. The American Economic Review, 405–409.

Stigler, G. J. (1980). An introduction to privacy in economics and politics. Journal of Legal Studies, 9(4), 623–644. https://doi.org/10.2307/724174

Varian, H. R. (2002). Economic aspects of personal privacy. In W. H. Lehr & L. M. Pupillo (Eds.), Cyber policy and economics in an internet age (pp. 127–137). https://doi.org/10.1007/978-1-4757-3575-8_9