Cash Substitution and Deferred Consumption as Data Breach Harms

61 Pages Posted: 17 Aug 2022 Last revised: 13 Mar 2024

See all articles by Lisa Yao Liu

Lisa Yao Liu

Columbia Business School

Lior Strahilevitz

University of Chicago Law School

Date Written: February 2, 2024

Abstract

Federal courts have long been divided over whether consumers whose data are breached suffer an “injury in fact” that gives them standing to sue under Article III of the United States Constitution. Judicial opinions find no constitutional standing in a narrow majority of such cases, and plaintiffs are likely to lose absent causal links to subsequent identity theft or the disclosure of embarrassing information. Consumers whose data are breached thus are left without a federal remedy, and firms’ incentives to invest in data security are diminished. Our paper identifies a novel injury that results from data breaches. Upon learning about local data breaches, consumers immediately and temporarily reduce their purchases and shift from credit card purchases to cash transactions. These effects are more pronounced with respect to purchases that are characterized by greater elasticity of demand. After a data breach, many consumers forego both the benefits of a short-term loan from their credit card issuer, cash-back benefits, and other perks associated with card purchases. In light of our empirical results, the standing barrier that has thwarted so many data breach suits in federal court may be easily surmounted.

Keywords: Data security, data breach, breach notification, standing, injury in fact, privacy, constitutional law, class action, empirical, credit card, cash, accounting

Suggested Citation

Liu, Lisa Yao and Strahilevitz, Lior, Cash Substitution and Deferred Consumption as Data Breach Harms (February 2, 2024). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 963, U of Chicago, Public Law Working Paper No. 809, Columbia Business School Research Paper No. 4187930, Available at SSRN: https://ssrn.com/abstract=4187930

Lisa Yao Liu

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Lior Strahilevitz (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-834-8665 (Phone)
773-702-0730 (Fax)

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