Information Sharing and Privacy in Networks

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Abstract. Users of social, economic, or medical networks share personal information in exchange for tangible benefits, but may be harmed by leakage and misuse of the shared information. I analyze the effect of enhancing privacy in the presence of two opposing forces: network effects and informational interdependencies. I show that two privacy enhancements|reducing the likelihood of leakage and decreasing the level of informational interdependence|have opposite effects on the volume of information sharing, and that although they always seem beneficial to non-strategic users, both privacy enhancements may backfire when users are strategic.