The Privacy Externality of Disclosing Correlated Data

Abstract

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 prices it through a distorted allocation and rations the discount at the top under a continuum of types. Selling tips disclosure past a liquidity threshold; consent dominates both data minimization and laissez-faire.