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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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    More about this item

    Keywords

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    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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