Economic Aspects of Personal Privacy

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Economic Aspects of Personal Privacy
Hal R. Varian1 UC Berkeley December 6, 1996

Contents
Contents Introduction A simple example Search costs Secondary users of information Incentives involving payment Contracts and markets for information Personal information Costs of acquiring public information Assignment of rights Summary Bibliography

Introduction
The advent of low-cost technology for manipulating and communicating information has raised significant concerns about personal privacy. Privacy is a complex issue and can be treated from many perspectives; this whitepaper provides an overview of some of the economic issues surrounding privacy.2 In particular, I first describe the role of privacy in economic transactions and argue that consumers will rationally want certain kinds of information about themselves to be available to producers and want other kinds of information to be secret. I then go on to consider how one might define property rights in private information in ways that allow consumers to retain control over how information about them is used.

A simple example
The most fundamental economic transaction is that of exchange: two individuals engage in a trade. For example, one person, ``the seller'' gives another person, ``the buyer'', an apple; in exchange, the buyer gives the seller some money.

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Economic Aspects of Personal Privacy

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Let us think about how privacy concerns enter this very basic transaction. Suppose the seller has many different kinds of apples (Jonathan, Macintosh, Red Delicious, etc.) The buyer is willing to pay at most r to purchase a Jonathan, and 0 to purchase any other kind of apple. In this transaction the buyer would want the seller to know certain things about him, but not others. In particular, the buyer would like the