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The economics of data externalities

Shota Ichihashi

Journal of Economic Theory, 2021, vol. 196, issue C

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.

Keywords: Externalities; Data markets; Privacy; Information design (search for similar items in EconPapers)
JEL-codes: D44 D82 D83 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jet.2021.105316

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