Essays on privacy and the value of information in adverse selection markets
This dissertation seeks to address the sharp increase in public debate about privacy issues, particularly on the issues of Internet privacy, genetic information privacy and the value of personal information, in markets exhibiting adverse selection. The dissertation is divided into three essays. All essays deal with the value of personal information—browsing behavior or genetic information—to firms, and the inherent loss of privacy of the consumer, associated with the release of this information. The first essay looks at privacy in the context of the Internet. The collection of browsing behavior, and forming consumer profiles based on the collected information, is useful to firms, who want to target consumers with a personalized product or service. At the same time, there is an inherent disutility to the consumer because of the collection of browsing behavior and the consequent loss of privacy. We study mechanisms that compensate consumers for their loss of privacy, thus allowing for a better match between personalized products and consumers. In the second essay we study the efficiency implications of privacy laws, on markets that enable trade in personal information. We create an experimental market populated with human agents and artificial agents, who trade in personal information. The setting allows us to test the theoretical predictions obtained in the first essay experimentally. It also allows us to study the impact of stricter privacy regimes on sellers profits, consumer surplus and overall efficiency. The third essay looks at privacy in the context of genetic testing. We study the impact of genetic testing, on a health insurance market. We characterize the existence and nature of insurance contracts when the individual can consent to revealing information, but where the revelation of genetic information is associated with a loss of privacy. We then examine the welfare implications of different policy proposals regarding genetic testing, with the decision of the consumer to take a genetic test and to reveal genetic information, being endogenous. ^
Major Professor: Alok R. Chaturvedi, Purdue University.
Business Administration, Management