Who should own your data? An economic analysis

 Who should own your data? An economic analysis

Data has become a major economic issue. In the digital ecosystem, the harvesting, processing and resale of information compose the strategy of many firms. Whether by providing a free service in exchange for attention or by collecting data during a transaction, many firms use the data provided by consumers, the latter being often not fully aware of it. To the extent that this data is an asset in the production process, the question of control over this data and thus ownership of the data arises.

In Europe (with the General Data Protection Regulation) as in the United States (with the California Consumer Privacy Act), there are legal responses that allow consumers to better control the collection and use of their data. But the question of ownership, and therefore the possibility of directly monetizing personal data, is still approached in a roundabout way (See Duch-Brown et al., 2017). Paradoxically, we’ve also seen a rise of data brokers who operate in an active data market (see FTC, 2014) and nothing prevents an individual from selling his/her private data in exchange for remuneration. However, data cannot really be transferred in the traditional way because the consumer can prevent a third party from using it (at least in Europe), even if he or she has previously authorized its use.

Despite these practical difficulties, both legal scholars and economists are increasingly tackling the topic. Beyond studying the consequences of implementing a data market, we need to understand the impact of allocating property rights either to consumers or to the firms that have made it possible to extract the data. The starting point is the idea that data as an economic object is the result of an interaction between two parties. Data has a special status as both input and output. Like other goods, allocating the rights to one party or the other changes the way people consume or produce (see Coase 1960).

In our recent paper (Dosis and Sand-Zantman, 2019), we propose a theoretical exploration of this issue in a two-sided market framework. More precisely, we analyze a situation in which consumers consume a service, with the data generated during this transaction able to be monetized subsequently (personalized offers, sale to data brokers, internal use, etc.). Two important assumptions are made in this study. Firstly, the market value of a given customer’s data is all the greater the more he or she uses the service and the more these data have been processed by the firm.  Second, consumers are concerned about their data being exploited, which negatively impacts their satisfaction when using the service. In this framework, we suggest a trade-off between two forms of inefficiency, with overexploitation of data on one hand and data under-processing on the other.

When firms own the rights to their consumers' data, as is currently the de facto case in most countries, they have the opportunity to monetize it and therefore have an incentive to both generate a lot of it and to process it efficiently to generate the greatest value. However, consumers are aware of this risk and tend to restrict their use of the service in question, particularly when they would have liked to use it intensively absent this risk. This results in an efficient data processing but limited use of the service by consumers.

When consumers have the control rights over their data instead, and can trade it on a market, they can adjust their decision to trade or not by considering the full benefits and costs.. On the flipside, this means that firms have no reason to process the data efficiently, which limits the money they can obtain on the market for data when they trade.

So what is the optimal choice between these two ownership regimes? Even if the interests of firms and consumers are not totally aligned, it can be shown that they evolve in the same direction when the data value on the second market - the one in which the data is resold - changes. 

Specifically, if the market value of the data in the second market is low, firms gain little from processing it fully. But the exploitation of data, or the risk of exploitation, reduces the intensity of use of the consumption of the service, and thus the firm's direct income on this market.  On the contrary, leaving the ownership of the data to the consumers guarantees a reasonable use of the data, at a limited opportunity cost since their market value is low. If, on the other hand, the market value of data is high, it is important for firms to exploit it monetarily, and to process it to extract the maximum value from it. This also leads them to propose very advantageous offers to consumers, if they have the possibility of adding value to the data generated.

In other words, when data has little market value, the inefficiencies associated with under-investment by firms in the valuation process are small relative to the benefits to consumers of having more control over the use of their data. On the other hand, where data has significant market value, granting firms the right to exploit consumer data leads to the creation of enough value to compensate consumers for the inconvenience of using their data.

Beyond questions about the relevance of monetizing personal data, this approach leaves important questions unanswered. First, determining the value of personal data is complex. Data is used internally (to improve the service offered) but also externally (for targeting or to be sold on a market) and determining the value of data for a firm is a very speculative task. Second, the value of an agent's personal data does not only depend on that agent. Indeed, information about one person can sometimes be retrieved from the personal data of others, such as friends, consumers with the same profile, etc. (see Choi et al., 2019. Finally, the economic transactions generating an individual’s data may involve several firms at the same time or the same data may be generated in parallel by independent economic transactions. The question of multiple ownership, or exclusive ownership, then arises, making the constitution of a market for data even more complex.

References

Choi, J.P., Jeon,  D.-S., & Kim, B.-C., (2019). Privacy and data collection with information externalities. Journal of Public Economics, 173, 113-124.

Coase, R. (1960). The problem of Social Cost. Journal of Law and Economics, 4, 1-44.

Dosis, A., & Sand-Zantman, W. (2019). The Ownership of Data. mimeo TSE and ESSEC.

Duch-Brown, N., Martens, B., & Mueller-Langer, F. (2017). The Economics of Ownership, Access and Trade in Digital Data. JRC Digital Economy, Working Paper 2017- 01.

Federal Trade Commission (2014). Data brokers: A call for transparency and accountability. Report. TC, Washington DC.

  

 



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