Privacy regulations and economic efficiency: a dynamic perspective

Abstract

There are important public debates on how—or even whether—to regulate information about previous transactions in different markets. Examples are the regulation of cookies in online markets, secrecy laws in financial markets, and transparency directives in government purchases. In these debates, considerations of economic efficiency and fairness are central. Do more lenient information policies increase market efficiency? Do internet users benefit from cookies? Does more secrecy increase trade volume in financial markets? Does transparency on previous agreements deteriorate the bargaining power of public agencies? This essay sheds light on the answers to these questions using insights from economic theory. We do so by analyzing a simple, stylized setting where the incentives of different agents in the market will be clear. Our focus is on the dynamic effects of information regulations, as a trader's incentive to reveal or conceal information is driven by its future use by other traders. We use our setting to assess the implications of information regulations on behavior, trade efficiency, or social welfare.