The Value of Privacy: Evidence From the Use of Mobile Devices for Traveler Information Systems

The emergence of location-based services has raised privacy to a hot-issue status. Clearly, there is a trade-off that needs to be considered. On the one hand, additional information can arguably improve the quality of the various services, not only for the individual, but also for the entire system. On the other hand, the collection of this additional information can be considered by some as a violation of their privacy. The objective of this article is twofold: on the one hand to provide a way to quantify the value of this privacy (loss), and on the other hand to present results from a case study applying this methodology. The methodology is generic and is based on the concept of the marginal rate of substitution between cost and a different variable (in this case privacy). The application is based on a stated-preference questionnaire that was specifically designed for this application and disseminated to respondents in Athens, Greece. An ordered probit model, in which all variables are interacted with the main service attributes (cost, accuracy, and privacy), is estimated based on this data. The empirical distribution of estimated willingness-to-accept for giving up part of the privacy (their current location and destination) was also calculated. The mean of the value of privacy (amount needed to give up one level of privacy) is found to be equal to 3.87euro, while the median is equal to 2.50euro (reflecting the skewness of the distribution). This amount is considered reasonable since such services are commercially available for US$5 per month.