Trading Privacy for Survival: Unequal Aadhaar Adoption and the Economics of Digital ID Systems

This paper examines how linking welfare benefits to India’s Aadhaar card—the world’s largest digital identity system—affected enrollment behavior and what these responses reveal about the implicit value individuals place on privacy. Using district-month panel data from UIDAI and the 2011 Census, the analysis applies difference-in-differences and event-study methods to the roll-out of the Direct Benefit Transfer (DBT) and Direct Benefit Transfer for LPG (DBTL) programs. The results show that DBT linkage increased Aadhaar applications by approximately 8 per 10,000 residents on average and by roughly 13 per 10,000 in poorer districts, indicating a substantially stronger response among economically vulnerable populations. By combining these enrollment responses with calibrated estimates of the monetary value of DBT-linked welfare benefits, the paper derives elasticities of Aadhaar applications with respect to benefit value ranging from approximately -0.079 in low-poverty districts to 0.725 in high-poverty districts. These responses imply that households were willing to incur privacy-inclusive costs equivalent to several thousand rupees annually in order to access Aadhaar-linked welfare transfers. These findings highlight how digital ID systems can reshape the incentives individuals face when interacting with the welfare state, contributing to broader discussions about digital identification, welfare delivery, and privacy in developing economies.