Data Privacy and Algorithmic Inequality

Zhuang Liu, Michael Sockin and Wei Xiong

No 31250, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a foundation for a consumer's preference for data privacy by linking it to the desire to hide behavioral vulnerabilities. Data sharing with digital platforms enhances the matching efficiency for standard consumption goods, but also exposes individuals with self-control issues to temptation goods. This creates a new form of inequality in the digital era—algorithmic inequality. Although data privacy regulations provide consumers with the option to opt out of data sharing, these regulations cannot fully protect vulnerable consumers because of data-sharing externalities. The coordination problem among consumers may also lead to multiple equilibria with drastically different levels of data sharing by consumers. Our quantitative analysis further illustrates that although data is non-rival and beneficial to social welfare, it can also exacerbate algorithmic inequality.

JEL-codes: D0 E0 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-ain, nep-pay and nep-reg
Note: AP CF EFG
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