Public Goods, Social Pressure, and the Choice Between Privacy and Publicity

We develop and explore a new model of the economics of privacy. Individuals with private information about an immutable personal attribute (the agent’s “type”) engage in actions that have a private benefit, contribute to a public good (bad) and, if observable, may reveal the agent’s type resulting in social approval (disapproval) or increased (decreased) future trading opportunities. We consider “privacy of action” as a limitation on the public observability of an individual agent’s choice of activity level, and characterize conditions under which it is socially preferable to provide a policy of privacy. When actions are private, agents with different types (for example, different preferences over how much they contribute to a charity, or over the level of health services they consume) need not conform their actions to those of others in order to pool their types with those of others. Unlike the usual pooling notion in information-economics models (wherein all types take the same, observable, action), privacy of action means that type-pooling occurs even though