PDFDownload paper RWP 19-05, July 2019

This paper analyzes whether a privacy regulation that restricts a dominant firm’s data disclosure level harms the firm’s incentives to invest in service quality and thereby harms social welfare. We study how the regulation affects the privacy and quality choices of a monopoly service provider, who derives revenues solely from disclosing user data to third parties, as well as how those choices in turn affect consumers’ participation and information-sharing decisions. We show that the regulation does not always harm investment incentives; moreover, even when it does, it may still improve social welfare.

JEL Classification: D83, L15, L51

Article Citation

Author

Ying Lei Toh

Economist

Ying Lei Toh is an economist in the Payments Strategies Division at the Federal Reserve Bank of Kansas City. Ms. Toh joined the Bank in 2018, after earning her Ph.D. in Economics…