Digital technology has started to reshape economies and financial systems across the world. Sharing of consumer data is key to the supply of data, which is the life blood of the booming digital economy.

There are growing concerns about data privacy protections across the world, which have led to the General Data Privacy Regulation (GDPR) enacted by the European Union in 2018 and the California Consumer Privacy Act (CCPA) by the State of California in 2020. Despite the importance of data privacy and protections, we know very little about consumers’ data privacy preferences and how their data privacy preferences actually affect their data-sharing choices.

This lack of knowledge is reflected by the so-called “privacy paradox”, a term used by policy makers and commentators to loosely describe a general disconnect between consumers’ stated privacy preferences and actual behavior. We will examine consumers’ privacy preferences and data-sharing choices by taking a survey of users of Alipay, a highly popular payment and lifestyle platform with more than a billion active users in China, about their data privacy preferences. We will combine their survey responses with their observed authorizations of data sharing with third-party mini-programs on the Alipay platform to examine how their privacy preferences affect their data-sharing choices.

There is also a lack of systematic framework to analyze how different data privacy regulations, such as the GDPR and the CCPA, may affect consumer behavior and welfare. We will also develop such a theoretical framework. This framework derives consume preferences for data privacy from consumers’ menu preferences in the presence of self-control problems to temptation goods. In particular, the framework makes it possible to analyze how different default data sharing choices instituted by the GDPR and the CCPA may sharply affect the equilibrium outcomes.

Our work will make significant contributions to the scientific literature on data privacy and digital economy. This research will have direct relevance to a number of current academic and policy debates, including the economic effects of data sharing and data privacy regulations. This project is well suited for funding by the Keynes Fund because it will facilitate “the design of incentive systems and mechanisms to reduce the incidence and significance of institutional or general economic failure as well as into responsive public policies.”