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Quantitative Marketing and Economics

, Volume 4, Issue 3, pp 209–239 | Cite as

Privacy, property rights and efficiency: The economics of privacy as secrecy

  • Benjamin E. HermalinEmail author
  • Michael L. Katz
Article

Abstract

There is a long history of governmental efforts to protect personal privacy and strong debates about the merits of such policies. A central element of privacy is the ability to control the dissemination of personally identifiable data to private parties. Posner, Stigler, and others have argued that privacy comes at the expense of allocative efficiency. Others have argued that privacy issues are readily resolved by proper allocation of property rights to control information. Our principal findings challenge both views. We find: (a) privacy can be efficient even when there is no “taste” for privacy per se, and (b) to be effective, a privacy policy may need to ban information transmission or use rather than simply assign individuals control rights to their personally identifiable data.

Keywords

Privacy Property rights Personal data Asymmetric information 

Notes

Acknowledgment

The authors would like to thank Thomas Davidoff, Giancarlo Spagnolo, Jean Tirole, Hal Varian, Michael Waldman, and Luc Wathieu, as well as participants in the 2004 “Quantitative Marketing and Economics Conference” and 2004 “Conference on the Economics of Electronics Communications Markets,” for helpful discussions of these issues. We are particularly grateful to an anonymous referee. An earlier version of this paper was titled “Is Privacy Efficient? The Economics of Privacy as Secrecy.”

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Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  1. 1.Haas School of BusinessUniversity of California, BerkeleyBerkeleyUSA

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