Privacy Concerns in Digital Currency Adoption
Presentend at Summer Workshop on Money, Banking, Payments, and Finance (Federal Board-2024), Midwest Macro Meetings (2024), ESA (2024), SEA (2024)
The digital transformation of money has introduced new dynamics in how currencies are adopted and used, especially concerning privacy. This research investigates the interplay between privacy concerns, transaction histories, and price discrimination in the adoption of new digital currencies. The framework is based on a multiple currency monetary search model where agents’ decisions determine the acceptance and the value of the currencies. Buyers are heterogeneous in their valuations over the goods and sellers have the ability to engage in price discrimination based on transaction histories. Theoretical findings indicate that higher privacy preferences can increase cash usage, however buyers may strategically switch payment methods to avoid future price discrimination by concealing their types. The theory is coupled with laboratory experiments which vary factors such as the value of privacy, the magnitude of the valuation shocks and transaction costs.
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