Working Paper: CEPR ID: DP18459
Authors: Alessandro Bonatti; Yunhao Huang; J. Miguel Villas-Boas
Abstract: The development of information technologies has heightened the debate over the potential loss of individual privacy and raised the importance of consumer rights to privacy. However, some of these technologies allow for substantial customization of communications and offerings to consumers. We present a theory of privacy based on the concavity of the indirect utility function with respect to market beliefs: concavity of the indirect utility function makes privacy valuable to individuals. We provide conditions on market settings that generate concavity (or convexity) of the indirect utility function. We apply the framework to product choice, price discrimination, hacking, and health insurance.
Keywords: privacy
JEL Codes: D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Loss of Privacy (K24) | More Precise Posterior Beliefs (C11) |
| More Precise Posterior Beliefs (C11) | Harm or Benefit to Individual (I12) |
| Concavity/Convexity of Payoff Function (D11) | Privacy Preferences (D18) |
| Loss of Privacy (K24) | Market Behavior in Favor of Individual (D01) |
| Loss of Privacy (K24) | Market Behavior Against Individual (G41) |