The Privacy Externality of Disclosing Correlated Data (opens in new tab)

A firm that discloses data about one customer moves a downstream seller's belief about every correlated customer, pricing third parties it never transacts with. This privacy externality equals the change in downstream deadweight loss, is signed by which side of the pricing threshold a customer is on, and falls hardest on those just carried across. Disclosure is privately optimal on an open set of imperfect correlations; incentive compatibility p...