Digital Privacy

42 Pages Posted: 6 Oct 2019 Last revised: 27 Jul 2020

See all articles by Itay P Fainmesser

Itay P Fainmesser

Johns Hopkins University - Carey Business School

Andrea Galeotti

University of Essex

Ruslan Momot

HEC Paris

Date Written: September 25, 2019


We study the incentives of a digital business to collect and protect users’ information. The information the business collects improves the service it provides to consumers, but it may also be accessed, at a cost, by strategic third parties in a way that harms users, imposing privacy costs. We characterize how the revenue model of the business shapes the equilibrium data policy. We compare the equilibrium data policy with the social optimum and show that a two-pronged policy, which combines a minimal data protection requirement with a tax proportional to the amount of data collected, restores efficiency.

Keywords: Information security, online platforms, data-driven businesses, data policy design, advertisement-driven businesses, transaction-driven businesses, welfare

Suggested Citation

Fainmesser, Itay Perah and Galeotti, Andrea and Momot, Ruslan, Digital Privacy (September 25, 2019). HEC Paris Research Paper No. MOSI-2019-1351, Available at SSRN: or

Itay Perah Fainmesser (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://

Andrea Galeotti

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Ruslan Momot

HEC Paris ( email )

1, rue de la Liberation
Jouy en Josas, 78351


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