The Macroeconomics of Data

Title: The Macroeconomics of Data

Abstract: We document a systematic increase in the accuracy of US firms’ expectations over time and show that this increase is tied closely to the change in the firm-size distribution. We develop a macroeconomic framework of firm information production consistent with this evidence. We show that firms’ size-dependent incentives to use ‘data-driven decision-making’ can rationalize the size-accuracy relationship documented in the survey data. Consistent with the data, our framework implies that firms that use information more intensely allocate inputs more efficiently, adopt better technologies, are more profitable, and grow faster and larger. Our framework further suggests that data-driven decision-making has important macroeconomic consequences: in a calibration exercise, we find that total factor productivity (household welfare) in the US would have been 7% (11%) lower in 2022 absent the increase in the accuracy of firms’ expectations over the past two decades. Finally, we use our quantitative-theoretical framework to demonstrate that firms’ size-dependent incentives to produce information mitigates data privacy concerns.

Keywords: data economy, imperfect information, firm heterogeneity, strategic complementarities, misallocation, product choice