Data is a valuable resource. Individuals can use their personal data to improve the quality of their decision-making. Companies often use data to improve the quality of their offerings, and make decisions on what products and services their customers want. As a commodity, data can be bought, traded, and sold like other economic resources.
But how valuable is that data, exactly? You may have heard the phrase “data is the new oil of the 21st century” thrown around, but do economists agree? Jennifer Corbett, a Rio Tinto Fellow at the Foundation for Australia, Japan Studies spoke at G1 Global 2019 about the true value of data.
Is data the “new oil?”
Jennifer Corbett: Let me give you some of the nuts and bolts about how we might think about some of these issues, and just hope it isn’t too dry. So, the first thing I want to talk about is the economics of data. And the first thing I want to say is, data is not the “oil of the new economy.”
You hear that phrase a lot but just think about this for a minute. Oil is what economists call a rival good. One country uses up oil, there’s less of it for everybody else. There’s a limited supply of oil in the world.
Data is totally different. Data is a non-rival good. However much of it there is out there, however much of it one company or person uses, it’s still there and everybody else can still use it.
The way we think about the economics of a good like that’s very different from how you regulate something like oil. So that’s the first thing to keep in mind.
The value of data quality vs data quantity
Corbett: The other thing about data is that, so far as we have any evidence, it is subject to diminishing returns to scale. It’s not the kind of thing where bigger is always better, more data’s always better. And in the end, that makes sense.
If you think about trips to the airport. The first three times you go to the airport, you learn something new each time you go. The 10th, 15th, and 20th time you go to the airport, the information is not worth very much.
Now that is broadly true of lots of kinds of information. That there’s a point beyond which collecting more of the same information isn’t that valuable.
How to determine data valuation in the digital economy
Corbett: We don’t actually understand the value of data. There aren’t really markets for data. And we don’t have prices for data, (just the little bites of information).
Where data becomes valuable is when you transform it into knowledge. When you do something with data, you analyze it, you put it through an algorithm, you transform it into a form that can be used in that way and then you use it.
Now, knowledge production, the economics of knowledge production, we know a lot more about.