Digital Gold? Pricing, Inequality and Participation in Data Markets

I examine inequalities arising from biases brought by the incentives and externalities present in data markets, where a data collector ultimately provides an end-service which is beneficial. Agents receive different prices for their data, which is valued according to the extent that it is representative of the data of non-participating agents. The service provider estimates the characteristics of high-cost and minority groups with less accuracy, leading to these groups receiving lower quality services on average, and lower utility in equilibrium. Data privacy policies tend to reduce such inequalities but at the cost of consumer surplus, while a subsidy strategy targeted at increasing the utility of those disadvantaged by data markets increases consumer surplus but may also widen inequality.