Economic Theories

1. Information Asymmetry: The breach created a situation where the company had knowledge of the breach (since November 2016), but customers were unaware until later. This asymmetry put customers at risk of identity theft without the information they needed to protect themselves. The letter seeks to correct this imbalance by informing customers of the breach and providing steps to mitigate potential harm.
2. Principal-Agent Problem: The company (the principal) relies on its third-party platform provider (the agent) to secure customer data. The breach occurred due to vulnerabilities in the provider’s system, highlighting a failure in the company’s oversight. The letter is part of the company’s responsibility to notify customers, address the failure, and restore trust in its ability to protect data in the future.

Social Science Theories

1. Social Contract Theory: The letter reflects a breach in the implicit social contract between the company and its customers. Customers trust the company to protect their personal data, and the breach violates that trust. By notifying customers and offering solutions (e.g., credit card monitoring), the company attempts to restore its obligations and rebuild the customer relationship.
2. Trust and Social Capital: The breach threatens the company’s social capital—trust with its customers. By issuing the letter and detailing steps taken to rectify the breach, the company aims to repair this trust, showing commitment to safeguarding customer information and maintaining positive long-term relationships.