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
Lefouili, Yassine, and Ying Lei Toh. 2019. “Privacy Regulation and Quality Investment.” Federal Reserve Bank of Kansas City, Research Working Paper no. 19-05, July. Available at External Linkhttps://doi.org/10.18651/RWP2019-05