Abstract
Personal data is an essential input for the digital economy. Yet, individuals often have limited control over its use and are rarely compensated for it. What inefficiencies does this status quo generate? Which market institutions could improve upon it? We study the competitive equilibria of an economy where platforms acquire consumers' data and use it to intermediate consumers and sellers. We find that granting consumers control over their data can backfire: It can lead to lower social welfare than when consumers are simply expropriated of their data. Even in the best-case scenario, allowing consumers to choose to whom they sell their data can only reach second-best efficiency. We show that to achieve full efficiency a large set of markets would need to open, which allows platforms and consumers to contract on how their data will be used. We comment on the difficulties of decentralizing in a practical way these efficient outcomes.