Knowledge Accumulation, Privacy, and Growth in a Data Economy

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 non-rival with flexible ownership while their production is endogenous and policy-dependent. Although a decentralized economy can grow at the same rate 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 the 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.

Keywords: Big Data, Data Ownership, Endogenous Growth, Innovation, Non-rivalry, Privacy Regulation

JEL Classification: E23, E27, K11, O11