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The economics of data externalities

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  • Ichihashi, Shota

Abstract

A firm buys data from consumers to learn about some uncertain state of the world. There are data externalities, whereby data of some consumers reveal information about other consumers' data. I characterize data externalities that maximize or minimize consumer surplus and the firm's profit. I use the result to solve an information design problem in which the firm chooses what information to buy from consumers, balancing the value and price of information. The firm collects no less information than the efficient amount. In some cases we can solve the firm's data collection problem with a two-step concavification method.

Suggested Citation

  • Ichihashi, Shota, 2021. "The economics of data externalities," Journal of Economic Theory, Elsevier, vol. 196(C).
    • Handle: RePEc:eee:jetheo:v:196:y:2021:i:c:s0022053121001332
    DOI: 10.1016/j.jet.2021.105316
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    References listed on IDEAS

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    Cited by:

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    2. Dirk Bergemann & Alessandro Bonatti, 2024. "Data, Competition, and Digital Platforms," American Economic Review, American Economic Association, vol. 114(8), pages 2553-2595, August.
    3. Charlson, G., 2022. "Digital Gold? Pricing, Inequality and Participation in Data Markets," Janeway Institute Working Papers 2225, Faculty of Economics, University of Cambridge.
    4. Catherine E. Tucker, 2023. "The Economics of Privacy: An Agenda," NBER Chapters, in: The Economics of Privacy, National Bureau of Economic Research, Inc.
    5. Ratul Das Chaudhury & Chongwoo Choe, 2023. "Digital Privacy: GDPR and Its Lessons for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(2), pages 204-220, June.
    6. Cong, Lin William & Wei, Wenshi & Xie, Danxia & Zhang, Longtian, 2022. "Endogenous growth under multiple uses of data," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    7. Itay P. Fainmesser & Andrea Galeotti & Ruslan Momot, 2023. "Digital Privacy," Management Science, INFORMS, vol. 69(6), pages 3157-3173, June.
    8. Kang, Kee-Youn, 2024. "Digital currency and privacy," Theoretical Economics, Econometric Society, vol. 19(1), January.
    9. Tesary Lin & Avner Strulov-Shlain, 2023. "Choice Architecture, Privacy Valuations, and Selection Bias in Consumer Data," Papers 2308.13496, arXiv.org.
    10. Georgios Petropoulos & Bertin Martens & Geoffrey Parker & Marshall Van Alstyne, 2023. "Platform Competition and Information Sharing," CESifo Working Paper Series 10663, CESifo.
    11. Ehsan Valavi & Joel Hestness & Newsha Ardalani & Marco Iansiti, 2022. "Time and the Value of Data," Papers 2203.09118, arXiv.org.
    12. Charlson, G., 2022. "Digital gold? Pricing, inequality and participation in data markets," Cambridge Working Papers in Economics 2258, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    Externalities; Data markets; Privacy; Information design;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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