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

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Andrew F. Daughety and Jennifer F. Reinganum
American Economic Journal: Microeconomics
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We model privacy as an agent's choice of action being unobservable to others. An agent derives utility from his action, the aggregate of agents' actions, and other agents' perceptions of his type. If his action is unobservable, he takes his full-information optimal action and is pooled with other types, while if observable, then he distorts it to enhance others' perceptions of him. This increases the public good, but the disutility from distortion is a social cost. When the disutility of distortion is high (low) relative to the marginal utility of the public good, a policy of privacy (publicity) is optimal.
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