Working Paper

Privacy Regulation and Quality Investment

Abstract: 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.

Keywords: Privacy Regulation; Data Disclosure; Investment; Quality;

JEL Classification: D83; L15; L51;

https://doi.org/10.18651/RWP2019-05

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2019-07-30

Number: RWP 19-5

Pages: 45 pages