Knowledge Accumulation, Privacy, and Growth in a Data Economy

TL;DR

This paper develops a growth model emphasizing consumer-generated data as a key factor in knowledge accumulation, highlighting privacy trade-offs, policy implications, and dynamic effects on economic growth and data provision.

Contribution

It introduces an endogenous growth model incorporating consumer data as a vital resource, analyzing privacy, policy impacts, and growth dynamics in a data-driven economy.

Findings

Decentralized economy can match social growth rate but with inefficiencies in R&D and data use.

Subsidizing innovators can improve data and innovation efficiency.

Long-term decline in consumer data provision mitigates privacy concerns.

Abstract

We build an endogenous growth model with consumer-generated data as a new key factor for knowledge accumulation. Consumers balance between providing data for profit and potential privacy infringement. Intermediate good producers use data to innovate and contribute to the final good production, which fuels economic growth. Data are dynamically nonrival with flexible ownership while their production is endogenous and policy-dependent. Although a decentralized economy can grow at the same rate (but are at different levels) as the social optimum on the Balanced Growth Path, the R&D sector underemploys labor and overuses data -- an inefficiency mitigated by subsidizing innovators instead of direct data regulation. As a data economy emerges and matures, consumers' data provision endogenously declines after a transitional acceleration, allaying long-run privacy concerns but portending initial growth traps that call for interventions.