Gaining strongTruststrong Through Online Privacy Protection Self.pdf

Carnegie Mellon University Research Showcase @ CMU Heinz College Research Heinz College 9-1-2007 Gaining Trust Through Online Privacy Protection: Self-Regulation, Mandatory Standards, or Caveat Emptor Zhulei Tang Purdue University Yu Jeffrey Hu Purdue University Michael D. Smith Carneg ie Mellon University, mds@ Follow this and additional works at : /heinzworks Published In J ournal of Management Information Systems, 24, 4, 153-173. This Article is brought to you for ree and open access by the Heinz College at Research Showcase @ CMU. It has been accepted for inclusion in Heinz College Research by an authorized administrator of Research Showcase @ CMU. For more information, please contact research- showcase@. Gaining Trust Through Online Privacy Protection: Self-Regulation, Mandatory Standards, or Caveat Emptor Zhulei Tang*, Yu (Jeffrey) Hu**, Michael D. Smith*** Forthcoming in Journal of Management Information Systems ABSTRACT Trust is particularly important in online markets to facilitate the transfer of sensitive consumer information to online retailers. In electronic markets, various proposals have been made to facilitate these information transfers. We develop analytic models of hidden information to analyze the effectiveness of these regimes to build trust and their efficiency in terms of social welfare. We find that firms’ ability to influence consumer beliefs about trust depends on whether firms can send unambiguous signals to consumers regarding their intention of protecting privacy. Ambiguous signals can lead to a breakdown of consumer trust, while the clarity and credibility of the signal under industry self-regulation can lead to enhanced trust and improved social welfare. Our results also indicate t