Privacy as a Public Good: A Case for Electronic Cash
Staff Working Paper/Document de travail du personnel 2019-24
42 Pages Posted: 29 Jun 2019 Last revised: 29 Jul 2019
Date Written: June 27, 2019
Privacy is a feature inherent to the use of cash for payments. With steadily increasing market shares of commercial digital payments platforms, privacy in payments may no longer be attainable in the future. In this paper, we explore the potential welfare impact of reductions in privacy in payments in a dynamic framework. In our framework, firms may use data collected through payments to price discriminate among future customers. A public good aspect of privacy in payments arises because individual customers do not bear the full costs of failing to protect their privacy. As a consequence, they may sub-optimally choose not to preserve their privacy in payments. When left to market forces alone, the use of privacy-preserving means of payments, such as cash, may decline faster than is optimal.
Keywords: Money, privacy, social costs, overlapping generations model
JEL Classification: E42, G28
Suggested Citation: Suggested Citation