Coase-Sandor Working Paper Series in Law and Economics
In a series of federal court cases, judges have debated whether data breaches that expose consumer information satisfy Article III of the United States Constitution’s requirement that plaintiffs suffer an “injury in fact.” Judicial opinions find no constitutional standing in a narrow majority of such cases, and plaintiffs are likely to lose absent causal links to subsequent identity theft or the disclosure of embarrassing information. Consumers whose data are breached thus are left without a federal remedy, and firms’ incentives to invest in data security are diminished. Our paper identifies a novel injury that results from data breaches. Upon learning about local data breaches, consumersimmediately reduce their purchases and shift from credit card purchases to cash transactions. These effects are more pronounced with respect to purchases that are characterized by greater elasticity of demand. The changes we identify are short-lived, though. After a data breach, many consumers forego both the benefits of a short-term loan from their credit card issuer, cash-back benefits, and other perks associated with card purchases. They also forego purchases they otherwise would have made. In light of our empirical results, the standing barrier that has thwarted so many data breach suits may be easily surmounted.
Lior Strahilevitz and Lisa Yao Liu, "Cash Substitution and Deferred Consumption as Data Breach Harms," Coase-Sandor Working Paper Series in Law and Economics, No. 963 (2022).