Publication Date: September 2019
Revision Date: July 2020January 2021October 2021
A data intermediary acquires signals from individual consumers regarding their preferences. The intermediary resells the information in a product market wherein ﬁrms and consumers tailor their choices to the demand data. The social dimension of the individual data -whereby a consumer’s data are predictive of others’ behavior- generates a data externality that can reduce the intermediary’s cost of acquiring the information. The intermediary optimally preserves the privacy of consumers’ identities if and only if doing so increases social surplus. This policy enables the intermediary to capture the total value of the information as the number of consumers becomes large.
Keywords: Social data, Personal information, Consumer privacy, Privacy paradox, Data intermediaries, Data externality, Data flow, Data policy, Data rights, Collaborative filtering
JEL Classification Codes: D44, D82, D83
See CFDP Version(s): CFDP 2203CFDP 2203RCFDP 2203R2CFDP 2203R3