Economics Webinar - Paying Consumers for Their Data: An Economic Analysis of Data Collection and Digital Privacy

This paper addresses two questions: What is the economic nature of consumer data, and how should consumers be compensated for their data? We develop a theoretical model to analyze compensation mechanisms for consumer data collection. Digital platforms provide essential digital services and subsequently collect consumer data for monetization. Our analysis sheds light on the interdependence between data collection and digital service provision, and explores the nature of cross-subsidization in the design of compensation mechanisms. We examine the optimal uniform compensation scheme by a monopolistic digital platform and the constrained optimum under various constraints, providing policy implications for digital privacy regulations.