Charles M. Kahn, James McAndrews, and William Roberds
Working Paper 2000-22
November 2000

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In this paper, we consider the costs and benefits of transactions privacy. In the environment we consider, privacy is the concealment of potentially useful information, but concealment also potentially bestows benefits. In some versions of the environment, the standard Coasian logic applies: given an unambiguous initial assignment of rights and sufficient flexibility in contracting, efficiency in information revelation will result. Coasian bargaining may be impeded, however, by either an inability to make certain commitments or by the presence of significant investments that must be made before the transaction occurs. In such cases, initial assignments of rights (for example, privacy laws) can have consequences for efficiency.

JEL classification: D80, G28

Key words: privacy, transactions, Internet, e-money

The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Charles M. Kahn, Department of Finance, University of Illinois, Champaign, Illinois,; James McAndrews, Research Department, Federal Reserve Bank of New York, New York,; or William Roberds, Research Department, Federal Reserve Bank of Atlanta, 104 Marietta Street, N.W., Atlanta, Georgia 30303-2713, 404-498-8970,