Who should decide how much information to collect?

Abstract

Abstract This article examines the tradeoffs concerning the collection and disclosure of personal information and considers either the seller or the buyers choosing how much information to collect. We identify two channels through which having heterogeneous buyers make the decision increases social welfare: the full internalization of privacy costs and the customized choice of information levels. Perhaps surprisingly, the buyers voluntarily provide more information than what is mandatorily collected particularly when privacy is a significant concern, which often benefits the seller. Consumer and total welfare are increased with buyers choosing how much information to collect unless the external value of information is sufficiently large relative to the buyers’ privacy cost and heterogeneity in valuation. Given the growing privacy concerns surrounding personal data, our analysis supports offering consumers the autonomy, which can result in a Pareto improvement.