Seminar: Economics of Privacy

Course content

If privacy is understood as controlling information flows, economic analysis can help to understand the welfare effects of privacy as well as the behavior of individuals with regards to sharing their information or not. The papers covered in this course give an economic perspective on privacy and the use of personal information. A particularly prominent role is played by controlling information about preferences and past purchasing behavior that could give firms the ability to personalize prices or products/services.

In this seminar you will pick one of the published papers listed below as a starting point. Your seminar report (and presentation)  should have the following structure:

- Introduction. Explain what is the topic and why it is interesting for economists.

- Related Literature Review. Briefly explain which other articles are relevant for the issue at hand. and put the paper in a broader context.

- Model. Present the setup of the paper.

- Results. Present and discuss the results of the paper. Avoid repeating proofs, but make sure you understand them and give intuitions, illustrations, or summaries of the main arguments instead.

- A Small but Original Contribution, related to the paper but not taken from it. What is feasible depends on the paper, but examples of original contributions are:

    A worked-out numerical example where you can illustrate the results of the paper, ideally giving rise to a graphical illustration.

· A computer simulation which illustrates aspects of the model in the paper which have not been or can not be showed analytically.

· A worked-out small variation or simplification of the paper’s model.

· A comparison of the results in the paper to later, related papers (this only counts as contribution if the comparison is not made in those later papers).

Related Work. Briefly summarize related papers which appeared after the one you have been assigned. (this section can be merged with the “related literature review” section)

- Conclusion. Summarize your work and its message

 

Education

MSc programme in Economics

The seminar is primarily for students at the MSc of Economics

Learning outcome

List of topics/papers:

1 Privacy in various contexts

• Posner, AER 1981, 71(2), p. 405-409, The economics of privacy

If privacy means holding private information, what are the welfare consequences of policies aimed at preserving privacy? (no model)

• Hirshleifer, AER 1971, 61, p. 561-74, The Private and Social Value of Information and the Reward to Inventive Activity

What are the welfare effects from acquiring information about the production technology in an economcy? How is this influenced by whether the information can be shared or not?

• Hirshleifer, Journal of Legal Studies 1980, 9(4), p. 649-664, Privacy: Its origins, function and future (no model)

• Daughety, Reinganum, American Economic Journal: Microeconomics 2010, 2(2), p. 191-221, Public goods, social pressure, and the choice between privacy and publicity

An agent cares about his action (say voluntary contribution to a public good), other agents’ actions and the perception of other agents about his action. What are the welfare effects of the possibility to keep your action private?

• Kahn, McAndrews, Roberds, Technical Report 2000-22, Federal Reserve Bank of Atlanta 2000, A theory of transactions privacy

Following the Coase theorem, property rights over data (who owns yourpersonal data) do not affect final outcomes. The paper describes why Coasian bargaining might break down and why privacy rights matter in this case.

• Jann and Schottmüller, working paper 2016, An informational theory of privacy

If individuals fear statistical discrimination in the future based on their decisions today, they might adapt today’s behavior ("chilling effects"). What are the welfare effects of this?

• Varian, In Privacy and Self-regulation in the Information Age. US Department of Commerce 1997, Economic aspects of personal privacy

Notes that low costs of information processing in the computer age generate privacy concerns. However, he notes that consumers might suffer if too little is known about them.

• Hoffmann, Inderst, Ottaviani, working paper 2015, Persuasion through Selective Disclosure: Implications for Marketing, Campaigning, and Privacy Regulation

Senders (say parties or firms) have very rich information and have therefore be selective in what to communicate to targets (say voters or consumers). When are privacy rules, which require the target’s consent before acquiring information on it, efficient? *

• Cummings R, Ligett K, Pai M. and A. Roth, working paper 2015, The strange case of privacy in equilibrium models

In a model of targeted advertising the degree of privacy is modeled by a continuous parameter ranging from full to no privacy. It is shown that the effect of varying privacy on various outcomes is not necessarily monotonic and sometims counterintuitive.

2  Personalization of prices and/or product

• Taylor, RAND 2004, 35, p. 631-51, Consumer Privacy and the Market for Customer Information

Firms use past purchase data to price discriminate. What are the welfare effects if firms can sell the information they have on users to other firms?

• Acquisti, Varian, Marketing Science 2005, 24(3), p. 367–381, Conditioning prices on purchase history

Merchants have tracking technologies (say cookies) while consumers have anonymization tools. When will personalization raise merchants profits or consumer surplus?

• Villas-Boas, Rand Journal of Economics 2004, 35(3), p. 486–501, Price cycles in markets with customer recognition

How do consumers behave today if they expect that their purchasing patterns today will be used to price discriminate in the future? What are the consequences for firms’ profits?

• Taylor and Wagman, International Journal of Industrial Organization 2014, 34, p. 80-84, Consumer Privacy in Oligopolistic Markets: Winners, Losers, and Welfare

What are the welfare effects of (non-) availability of personal information on consumers in standard IO models?

• Kim, Choi, Journal of Economics & Management Strategy 2010, 19(2), p. 403–433, Customer information sharing: Strategic incentives and new implications

Oligopoistic firms can share data of consumers’ past purchasing behavior with another while they are unsure about consumers preferences. Will information be shared? What is the effect on consumer surplus?

• Kim, Wagman, RAND Journal of Economics 2015, 46(1), p. 1–22, Screening incentives and privacy protection in financial markets: A theoretical and empirical analysis

Firms offer financial products and screen consumers; they also sell information gained in the screening to other banks. How does the ability to sell personal information of consumers affect market outcomes?

• Conitzer, Taylor, Wagman, Marketing Science 2012, 31, p. 762-94, Hide and Seek: Costly consumer privacy in a market with repeat purchases

A firm can use past purchasing behavior to price discriminate if it can identify consumers. Consumers can choose to anonymize (potentially at a cost). Will consumers anonymize in equilibrium? What are the effect on profits and consumer surplus if the costs of anonymization change?

• Calzolari, Pavan, Journal of Economic Theory 2006, 130(1), p. 168–204, On the optimality of privacy in sequential contracting

• A consumer can buy first from an upstream and then from a downstream seller. The upstream seller can sell purchasing information to the downstream seller. If the consumer anticipates this, will private information be traded in equilibrium? Would the upstream seller commit to privacy if he can? What are the welfare effects of selling information? (required tools: revelation principle, envelope theorem) *

Planning/start-up meeting, research and writing process of the seminar paper, sessions with presentation of own paper and critical evaluation/feedback to another student´s paper, actively participating in discussions at class.

Before the session a "so-finalized-as-possible"-draft of the paper must be uploaded in Absalon. After the presentations, the student submit an edited version of the paper in the Digital Exam portal as the final exam paper. The aim is that students use the presentation sessions as an opportunity to receive and use the constructive feedback to improve the paper.

Acquisti, Alessandro, Curtis Taylor, and Liad Wagman. "The economics of privacy." Journal of Economic Literature 54.2 (2016): 442-492.

 

It is strongly recommended that students have completed the course Microeconomics III before taking this seminar. Topics marked with a * require advanced knowledge as offered in the course Mechanism Design.

Schedule:
• Planning meeting: September 11, 10:00-12:00
• Deadline commitmentpaper: In agreement with the lecturer and not later than 1st of October.
• Deadline of pre-paper uploaded to Absalon: November 9, 9:00
• Presentations/Workshops: November 16 (+ 17 if number of students is high), 9:00-17:00

ECTS
7,5 ECTS
Type of assessment
Written assignment
- a seminar paper in English that meets the formal requirements for written papers stated in the curriculum and at KUNet for seminars.
Aid
All aids allowed
Marking scale
7-point grading scale
Censorship form
External censorship
Criteria for exam assessment

The student must in a satisfactory way demonstrate that he/she has mastered the learning outcome of the course and the objectives stated in the Curriculum.

  • Category
  • Hours
  • Seminar
  • 20
  • Project work
  • 186
  • English
  • 206