A Theory of the Effects of Privacy

Alessandro Bonatti, Yunhao Huang and J. Miguel Villas-Boas

No 18459, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2023-09
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