American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
What Should a Firm Know? Protecting Consumers' Privacy Rents
American Economic Journal: Microeconomics
vol. 14,
no. 4, November 2022
(pp. 257–95)
Abstract
A monopolistic firm observes a signal about the state of the world and then makes a take-it-or-leave-it offer to an uninformed consumer who has recourse to some outside option. We provide a geometric characterization of the firm's information structure that maximizes the consumer's surplus: the optimal regime partitions the space of payoff states into polyhedral cones with disjoint interiors. We interpret our results in terms of the maximization of the consumer's "privacy rent." We illustrate and motivate our approach through the example of the regulation of the privacy of medical information in monopolistic health insurance markets.Citation
Bird, Daniel, and Zvika Neeman. 2022. "What Should a Firm Know? Protecting Consumers' Privacy Rents." American Economic Journal: Microeconomics, 14 (4): 257–95. DOI: 10.1257/mic.20200215Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D42 Market Structure, Pricing, and Design: Monopoly
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G22 Insurance; Insurance Companies; Actuarial Studies
- I13 Health Insurance, Public and Private
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