Discussion paper

DP17313 Payments and privacy in the digital economy

We propose a model of financial intermediation, payments choice, and privacy in the digital economy. While digital payments enable merchants to sell goods online, they reveal information to their lender. Cash guarantees anonymity, but limits distribution to less efficient offline venues. In equilibrium, merchants trade off the efficiency gains from online distribution (with digital payments) and the informational rents from staying anonymous (with cash). Privacy-preserving digital payments raise welfare by reducing privacy concerns, but only arrangements that enable data-sharing through consent functionalities guarantee that the social optimum is attained.


Ahnert, T, P Hoffmann and C Monnet (2022), ‘DP17313 Payments and privacy in the digital economy‘, CEPR Discussion Paper No. 17313. CEPR Press, Paris & London. https://cepr.org/publications/dp17313