Knowledge Accumulation, Privacy, and Growth in a Data Economy

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.

Automated summary

The endogenous growth model incorporates consumer-generated data as a key factor for knowledge accumulation, and highlights the importance of balancing between data provision for profit and potential privacy infringement. While a decentralized economy can grow at the same rate as the social optimum, there is underemployment in the R&D sector and overuse of data, which can be addressed by subsidizing innovators to mitigate inefficiencies.