Personalization and Privacy Choice

Andrew Rhodes and Jidong Zhou
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Andrew Rhodes: Toulouse School of Economics
Jidong Zhou: Yale University

No 2388, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper studies consumers' privacy choices when firms can use their data to make personalized offers. We first introduce a general framework of personalization and privacy choice, and then apply it to personalized recommendations, personalized prices, and personalized product design. We argue that due to firms' reaction in the product market, consumers who share their data often impose a negative externality on other consumers. Due to this privacy-choice externality, too many consumers share their data relative to the consumer optimum; moreover, more competition, or improvements in data security, can lower consumer surplus by encouraging more data sharing.

Pages: 50 pages
Date: 2024-04
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:cwl:cwldpp:2388

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