The real puzzle of blackmail: An informational approach

The “puzzle” of blackmail is that threats to reveal private information that would be harmful to someone in exchange for money are illegal, but revelation is not. The resolution is that concealment of information about product quality impedes the efficient operation of markets, whereas revelation promotes it. The real puzzle is why possessors are not naturally inclined to sell to uninformed parties, who value the information more than would-be blackmail victims. The answer has to do with the public good qualities of information, which create an appropriability problem in transactions with uninformed parties. The paper also discusses incentives to acquire compromising information.

► Blackmail is the withholding of private information in return for money. ► The “puzzle” of blackmail is why such transactions are illegal. ► The answer is that concealing information impedes efficient exchange. ► The real puzzle is why possessors of information do not sell to uninformed parties. ► The answer has to do with the public good nature of information.