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The Economics of Privacy

64 Pages Posted: 27 Mar 2015 Last revised: 14 Jun 2016

Alessandro Acquisti

Carnegie Mellon University - Heinz College

Curtis R. Taylor

Duke University - Department of Economics

Liad Wagman

Illinois Institute of Technology - Stuart School of Business, IIT

Date Written: March 8, 2016

Abstract

This article summarizes and draws connections among diverse streams of theoretical and empirical research on the economics of privacy. We focus on the economic value and consequences of protecting and disclosing personal information, and on consumers' understanding and decisions regarding the trade-offs associated with the privacy and the sharing of personal data. We highlight how the economic analysis of privacy evolved over time, as advancements in information technology raised increasingly nuanced and complex issues associated with the protection and sharing of personal information. We find and highlight three themes that connect diverse insights from the literature. First, characterizing a single unifying economic theory of privacy is hard, because privacy issues of economic relevance arise in widely diverse contexts. Second, there are theoretical and empirical situations where the protection of privacy can both enhance, and detract from, individual and societal welfare. Third, in digital economies, consumers' ability to make informed decisions about their privacy is severely hindered, because consumers are often in a position of imperfect or asymmetric information regarding when their data is collected, for what purposes, and with what consequences. We conclude the article by highlighting some of the ongoing issues in the privacy debate of interest to economists.

Keywords: Information Economics, Privacy, Privacy Policies

JEL Classification: D04, D18, D23, D4, D52, D6, D8, D82, D86, L1, L2, L5, L51

Suggested Citation

Acquisti, Alessandro and Taylor, Curtis R. and Wagman, Liad, The Economics of Privacy (March 8, 2016). Journal of Economic Literature, Vol. 52, No. 2, 2016; Sloan Foundation Economics Research Paper No. 2580411. Available at SSRN: https://ssrn.com/abstract=2580411 or http://dx.doi.org/10.2139/ssrn.2580411

Alessandro Acquisti

Carnegie Mellon University - Heinz College ( email )

Pittsburgh, PA 15213-3890
United States
412-268-9853 (Phone)
412-268-5339 (Fax)

Curtis R. Taylor

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1827 (Phone)
919-684-8974 (Fax)

Liad Wagman (Contact Author)

Illinois Institute of Technology - Stuart School of Business, IIT ( email )

565 W Adams St Suite 452
Chicago, IL 60661
United States
7739809883 (Phone)

HOME PAGE: http://lwagman.org

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