Privacy and Personal Data Collection with Information Externalities

35 Pages Posted: 13 Feb 2018

See all articles by Jay Pil Choi

Jay Pil Choi

Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Doh-Shin Jeon

Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR)

Byung-Cheol Kim

University of Alabama

Date Written: January 31, 2018

Abstract

We provide a theoretical model of privacy in which data collection requires consumers' consent and consumers are fully aware of the consequences of such consent. Nonetheless, excessive collection of personal information arises in the monopoly market equilibrium which results in excessive loss of privacy compared to the social optimum. In a fragmented market with a continuum of firms, no individual website has incentives to collect and monetize users' personal data in the presence of scale economies in data analytics. However, the emergence of data brokerage industry can restore these incentives. Our results have important policy implications for the ongoing debate regarding online privacy protection: excessive loss of privacy emerges even with costless reading and perfect understanding of all privacy policies. We support the view that privacy is a public good and propose alternative policy remedies beyond the current informed-consent approach.

Keywords: privacy, personal data, information externalities, big data analytics

JEL Classification: D, H, L

Suggested Citation

Choi, Jay Pil and Jeon, Doh-Shin and Kim, Byung-Cheol, Privacy and Personal Data Collection with Information Externalities (January 31, 2018). Available at SSRN: https://ssrn.com/abstract=3115049 or http://dx.doi.org/10.2139/ssrn.3115049

Jay Pil Choi

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-353-7281 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Doh-Shin Jeon

Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Byung-Cheol Kim (Contact Author)

University of Alabama ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
7708462727 (Phone)
7708462727 (Fax)

HOME PAGE: http://https://sites.google.com/site/byungcheolkim76/

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