Asset Bubbles in the Data Economy

59 Pages Posted: 16 Apr 2024

See all articles by Feng Dong

Feng Dong

Tsinghua University - Tsinghua University School of Economics and Management

Jinpu Li

Tsinghua University - Institute of Economics

Date Written: January 4, 2024

Abstract

Data are emerging as important assets with which firms can apply for credit. We develop a dynamic general equilibrium model with a vertical production chain to characterize the role of rational bubbles in the data economy. In our framework, data have four attributes: they are processed by a chain structure, are byproducts, are nonrivalrous in investment, and are contextual. We show that multiple equilibria exist in the steady state, and the attributes of data affect properties both at the steady state and along the transition dynamics. Our analysis reveals that both the reallocation effect and the efficiency effect that occur in bubbly equilibrium affect the data capital accumulation. Bubbles that emerge in the data product sector can provide additional liquidity to loosen firms' financing constraints, but in an environment where data investment is highly nonrivalrous, bubbles can be welfare-reducing. Bubbles are more likely to emerge when the data depreciation rate or asset specificity is high. Furthermore, our dynamic analysis implies that there could be a data-driven cycle along the transitional path when nonrivalry in data investment exists.

Keywords: Data Economy, Asset Bubbles, Financial Frictions, Data Asset, Production Chain

JEL Classification: E22, E30, G32

Suggested Citation

Dong, Feng and Li, Jinpu, Asset Bubbles in the Data Economy (January 4, 2024). Available at SSRN: https://ssrn.com/abstract=4790765 or http://dx.doi.org/10.2139/ssrn.4790765

Feng Dong

Tsinghua University - Tsinghua University School of Economics and Management ( email )

Room 623, Lihua Building, School of Economics and
Beijing, Beijing 100084
China

Jinpu Li (Contact Author)

Tsinghua University - Institute of Economics ( email )

MingZhai Building
Beijing, 100084
China

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