A Theory of Pricing Private Data

Personal data has value to both its owner and to institutions who would like to analyze it. Privacy mechanisms protect the owner's data while releasing to analysts noisy versions of aggregate query results. But such strict protections of individual's data have not yet found wide use in practice. Instead, Internet companies, for example, commonly provide free services in return for valuable sensitive information from users, which they exploit and sometimes sell to third parties. As the awareness of the value of the personal data increases, so has the drive to compensate the end user for her private information. The idea of monetizing private data can improve over the narrower view of hiding private data, since it empowers individuals to control their data through financial means. In this paper we propose a theoretical framework for assigning prices to noisy query answers, as a function of their accuracy, and for dividing the price amongst data owners who deserve compensation for their loss of privacy. Our framework adopts and extends key principles from both differential privacy and query pricing in data markets. We identify essential properties of the price function and micro-payments, and characterize valid solutions.Comment: 25 pages, 2 figures. Best Paper Award, to appear in the 16th International Conference on Database Theory (ICDT), 201

The typology of partial credit guarantee funds around the world

This paper presents data on 76 partial credit guarantee schemes across 46 developed and developing countries. Based on theory, the authors discuss different organizational features of credit guarantee schemes and their variation across countries. They focus on the respective role of government and the private sector and different pricing and risk reduction tools and how they are correlated across countries. The findings show that government has an important role to play in funding and management, but less so in risk assessment and recovery. There is a surprisingly low use of risk-based pricing and limited use of risk management mechanisms.

Monopoly power and distribution in fragmented markets : the case of groundwater

Using data from Pakistan's Punjab, the authors examine monopoly power in the market for groundwater - irrigation water extracted using private tubewells - a market characterized by barriers to entry and spatial fragmentation. Simple theory predicts that tubewell owners should price-discriminate in favor of their own share tenants. And this analysis of individual groundwater transactions over an 18-month period confirms such price discrimination. And among those studied, tubewell owners and their tenants use considerably more groundwater on their plots than do other farmers. The authors also provide evidence that monopoly pricing of groundwater leads to compensating - albeit small - reallocations of canal water, which farmers exchange in a separate informal market. Despite the substantial misallocation of groundwater, a welfare analysis show that monopoly pricing has limited effects on equity and efficiency. In the long run, a policy aimed at eliminating monopoly pricing would do little to help the poorest farmers.Water and Industry,Water Resources Law,Water Conservation,Environmental Economics&Policies,Water Supply and Systems,Water and Industry,Water Conservation,Water Supply and Sanitation Governance and Institutions,Drought Management,Water Use

The forgotten rationale for policy reform : the productivity of investment projects

Using economic rates of return from more than 1,200 public and private sector projects implemented in 61 developing countries, the authors analyze determinants of investment productivity. Results from Tobit estimation demonstrate that the degree of countrywide policy distortions - macroeconomic, exchange rate, trade and pricing - critically affects the productivity of investments. Countries with undistorted policies are likely to be unproductive investments. In countries with distorted policies, investments are likely to be unproductive. And within a country, investments become more productive when economic policymaking improves. The productivity of projects in the tradable sectors are also affected (in a nonlinear fashion) by the size of a country's public investment program. The authors discuss possible selection biases in this data set, present tests of robustness, and highlight policy implications. In particular, donor financing for improvements in the policy climate is likely to pay off. A powerful rationale for supporting structual reform is that it raises the productivity of both public and private investments.Payment Systems&Infrastructure,ICT Policy and Strategies,Environmental Economics&Policies,Decentralization,Economic Theory&Research,ICT Policy and Strategies,Environmental Economics&Policies,Economic Theory&Research,Economic Stabilization,Achieving Shared Growth

Intertemporal substitution, risk aversion, and private savings in Mexico

The decline in private savings since 1982 is arguably the most important problem in high debt countries. A reversal of the trend is essential if growth is to be restored. Three factors predominate : 1) the extent of intertemporal substitution; 2) attitudes toward risk; and 3) private/public savings interaction. These factors lie at the core of the authors'research. They test the issue of debt neutrality - whether future taxes are recognized as an offset for the value of any government debt held - and the response of private savings to real interest rates and uncertainty. The authors estimated two configurations of a joint portfolio-choice/savings model. First, they included equity, domestic bonds, and flight capital. In the second configuration they eliminated flight capital. The authors conclusions include the following : i) the intertemporal approach to consumption is supported by the data; ii) the results imply rejection of the traditional, expected utility approach; iii) risk aversion is significant but lower than many have argued from analysis of static versions of the capital asset pricing model; iv) results on the intertemporal substitution elasticity are much weaker; and v) domestic government bonds probably are considered as part of private wealth, although significantly less than one for one, thus rejecting debt neutrality.Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Financial Intermediation,Inequality

A cost-benefit analysis of tunnel investment and tolling alternatives in Antwerp

This paper presents and illustrates a comprehensive and operational model for assessing transport pricing and investment policies and regulatory regimes. The approach encompasses intra-modal as well as inter-modal competition, and could be used either by private operators or by the legislator for the purpose of evaluating market conduct. The model combines elements of contract theory, public economics, political economy, transportation economics and game theory. It incorporates a CES-based discrete-choice framework in which user charges and infrastructure investments are endogenously determined for two competing alternatives (air, rail or two parallel roads) that may be used for transportation of passengers and/or freight. The model includes separate modules for demand, supply, equilibrium and the regulatory framework. The demand module for passenger transport features a CES decision tree with three levels: choice between transport and consumption of a composite commodity, choice between peak and off-peak periods, and choice between the two transport alternatives. Elasticities of substitution at each level are parametrically given. Passengers can be segmented into classes that differ with respect to their travel preferences, incomes and costs of travel time. The demand module for freight transport also features three levels. The first level encompasses choice between transport and other production inputs, and the second and third levels are the same as for passenger transport. Freight transport can be segmented into local and transit traffic. The supply module specifies for each transport alternative travel time as a function of traffic volume and a rule for infrastructure maintenance. Operating, maintenance and investment costs are allowed to depend on the contractual form. Given the demand and supply functions, the equilibrium module computes a fixed-point solution in terms of prices and levels of congestion. Finally, the exogenous regulatory framework stipulates for each alternative the objective functions of the operators and infrastructure managers (public or private objectives), the nature of competition, procurement policies, the cost of capital, and the source and use of transport tax revenues. Possible market structures include: no tolls (free access), exogenous tolls, marginal social cost pricing, private duopoly and mixed oligopoly. Public decisions can be made either by local or central governments that may attach different welfare-distributional weights to agents (e.g. low-income vs. high-income passengers, or local vs. transit freight traffic) as well as different weights to air pollution and other (non-congestion) external transport costs. Primary outputs from the model are equilibrium prices, transport volumes, travel times, cost efficiency of operations, toll revenues and financial balances, travellers’ surplus and social welfare. In the final section of the paper the methodology is illustrated with an example of competition in the market for long-distance passenger travel between high-speed rail and air. A simple procedure allows the calibration of the parameters when aggregate data are available. The model is used to evaluate policies (pricing, investment, taxes, inter alia).

Cost recovery and pricing of payment services

A modern payment system is essential for promoting domestic and international trade and exchange as well as developing financial markets. Payment users will be directed toward the most efficient payment methods when the costs of producing those services are reflected in the prices paid. Resources are being wasted in the United States because consumers see no important difference in transaction prices or bank costs between using a check or using electronic direct debit in paying a bill, even though the social costs of these two instruments are different. Electronic payments cost only a third to half as much as paper-based payments. An estimated $100 billion (or 1.5 percent of GDP) is being lost by the continued use of paper-based checks. When payment instruments are not appropriately priced, the costs must be covered elsewhere. One common solution is to let loan revenues cover part of payment expenses (keeping loan rates higher to compensate). When prices reflect the full cost of producing the service, users demand the services that use the fewest real resources. The authors give examples of payment prices and price schedules and show how underlying cost data are used to"build up"to a price. They outline how payment services may best be structured to: a) Appropriately reflect economies of scale or scope in the production of payment services; b) Adjust cost recovery percentages to accommodate how much demand conditions associated with start-up differ from those associated with mature operation. (During a new system's early years of operation, the transaction volume may be low and some form of underrecovery of costs may be required to encourage use of the system. But any such underrecovery must be built into future pricing arrangements oncethe systems are established and traffic volumes are at a level where full cost recovery is practical. To ensure fairness, the pricing structure must also guarantee that latecomers to the system not get more favorable treatment than the initial user group.); and c) Induce efficient use of scarce resources. They note the economic principles that recommend certain pricing methods over others and apply equally to payment services provided by the private sector or through a government agency. They show why costs should be recovered through user transaction fees.Banks&Banking Reform,Payment Systems&Infrastructure,Economic Theory&Research,Markets and Market Access,Decentralization,Payment Systems&Infrastructure,Economic Theory&Research,Banks&Banking Reform,Environmental Economics&Policies,Markets and Market Access

Market Share and Price Setting Behavior For Private Labels and National Brands

In this paper, we develop a framework for estimating market share and price reaction equations in an attempt to understand the nature of competitive interaction in the market for private label and branded grocery products. Specifically, we employ a Linear Approximate Almost Ideal Demand System (LA/AIDS, Deaton and Muellbauer 1980a), and specify the price reaction equations derived under the LA/AIDS demand specification. This enables us to consistently estimate shareprice relationships, accounting for demand-side and competitive reactions simultaneously. The incorporation of LA/AIDS demands into a structural equation framework represents an important departure from previous demand specifications in competitive analysis. In addition to its rigorous foundation in utility theory, LA/AIDS demands are especially flexible for demand-side estimation, provide consistent reaction functions on the supply side, and have particularly nice aggregation properties. In order to test the relative contribution of employing a flexible LA/AIDS functional form on the demand-side, and in a preliminary attempt to assess manufacturer-retailer interaction on the supply side, we compare our general framework (LA/AIDS demands with retailers following a proportional markup rule) to two alternative models of manufacturer-retailer interaction: Chois (1991) Manufacturer-Stackelberg (M-S) model under linear demands, as well as Shubik demands under Stackelberg conduct (Raju, Sethuraman and Dhar 1995a, 1995b). We first apply the proposed LA/AIDS framework to a sample pooled across 125 categories and 54 geographic markets in an attempt to produce result that generalize across the entire sample. We then estimate all three models using data on seven individual categories: bread, milk, pasta, yogurt, instant coffee, butter and margarine. We conclude that the LA/AIDS demand specification is preferred to the alternative linear demand specifications. Further, the empirical findings support our premise that consumer response to price and promotion decisions (demand) and the factors influencing firm pricing behavior (supply) jointly determine observed market prices and market shares. Most importantly, our specification with LA/AIDS demands produced excellent overall fits, as well as reasonable demand and price response elasticities.competition, competitive strategy, private labels, pricing, Demand and Price Analysis, Industrial Organization,

Mark-Up Pricing in Bulgarian Manufacturing

The pricing policy of Bulgarian manufacturing firms is analysed in the paper in the context of the theory of the price-setting behaviour of firms endowed with market power, and more specifically, using the notion of mark-up pricing. Using some recent derivations in the literature, we estimate mark-up ratios for Bulgarian manufacturing sectors at the NACE 2-digit and NACE 3-digit levels. The estimated mark-ups are then tested against a set of variables measuring the degree of competitive pressure on a sectoral level.http://deepblue.lib.umich.edu/bitstream/2027.42/39773/3/wp389.pd