JUSTIFYING DIGITAL DIVIDENDS

Justifying Digital Dividends Thinking beyond consumer desert.sup>
< [1] I applaud this Legislature for passing the first-in-the-nation digital privacy law. . . California’s consumers should also be able to share in the wealth that is created from their data. And so, I’ve asked my team to develop a proposal for a new Data Dividend for Californians.sup>< [2] – California Governor Gavin Newsom, State of the State 2019 Digital Dividends.br>In his 2019 State of the State speech, California Governor Gavin Newsom announced that his state will implement a “digital dividend.”< [3]
Digital dividends are payments that online platforms< [4]
would make to the consumers of their services in exchange for the right to collect their data. [5]
Right now, platforms have the power to unilaterally decide the value of consumer data.br>
Generally, they provide consumers free access to their platforms in exchange for unlimited access to data, valuing it at exactly the cost of admission (“data-for-access”). [6]
However, California is taking the position that consumers deserve to be compensated beyond this exchange. [7] One proposed implementation of a digital dividend is granting consumers a property interest in their data and allowing them to trade that interest for compensation. For example, if a consumer performs a Google search, posts to Instagram, and likes a tweet, that consumer could agree to allow Google, Instagram, and Twitter to use the data generated from those interactions for a nominal fee. Over time, the small fees would build up into a substantial sum: the digital dividend.br>
Does Gavin Newsom’s assertion of desert, which finds a home in the Locke Labor Theory of property, supply an ideal justification for a digital dividend? This essay asserts that it does not and argues Utilitarian Theory provides a better justification for the digital dividend that would realize propertization advocates’ lofty goals. Justification is important because it drives rhetoric surrounding new policies. Rhetoric will then shape the implementation of the digital dividend and serve as the basis for evaluating the digital dividend’s success. [8]
This essay will first discuss how both Locke Labor Theory and Utilitarian Theory can justify granting consumers a property right in their data. Labor Theory justifies a property right commensurate to the amount of labor consumers put into data monetization through the two-sided market. Meanwhile, Utilitarian Theory justifies propertization
of
data so long as the benefits introduced by propertization outweigh the inefficiencies introduced by propertization. Second, this paper will discuss how only Utilitarian Theory justifies changing the market from data-for-access to a digital dividend scheme. However, before the theories of propertization are discussed, it is important to understand the two-sided market structure that underlies the current data-for-access approach.br>

A lucrative business model caused political unrest.br>The two-sided market business model is central to the public outcry for a digital dividend. In this model, platforms cater to two markets, consumers and advertisers.sup>
< [9]
They offer consumers free services on their platforms in exchange for unlimited access to consumer data. [10]
For example, Facebook, Google, Twitter, and Instagram allow users to open accounts and use their platforms free of charge. These firms profit by selling targeted advertisements to advertisers. [11]
Employing predictive algorithms, targeted advertisements match products to consumers, showing individual consumers advertisements of products they will most likely buy. [12]
Targeted advertisements are valuable because they reach consumers with personally-matched content and exclude showing advertisements to consumers who would probably not care for the product. [13]
The two-sided market has also expanded access to information. For example, consumers need only access to the internet to use Google, which grants access to 2.5 quintillion bytes of information organized at the command of our fingertips. [14]
Facebook allows consumers to easily maintain connections with people around the world. [15]
Twitter allows news stories to come to light without having to go through the major news networks gate-keeping processes. [16]However, “[t]he value of the data being exchanged may exceed the value of the product provided.”< [17]
Without consumer influence in the marketplace, platforms have total control to determine the price of data. [18]
As information on how platforms monetized consumer data through the two-sided market spread throughout the public, outrage flared. Consumers of free online platforms began to feel more like products and less like customers. [19]They started to notice that platforms and advertisers buy and sell data and the consumer is effectively sidelined in the transaction. [20]
This sentiment led to Gavin Newsom’s digital dividend proposal in his State of the State speech and other calls for compensating platform consumers. For example, a class action lawsuit against General Motors was filed, arguing that drivers of GM vehicles should be compensated for the data they produce. [21]
So, do consumers deserve a digital dividend?

Propertization of data on the basis of consumer desert is a Locke Labor Theory justification. The Locke Labor Theory justifies
a property right. However, the property right can only be strong enough to allow consumers to extract from the two-sided market the value of the labor they invested into providing the data. This property right may not be as strong as data propertization advocates would hope.
The Locke Labor Theory.

The Locke Labor Theory justifies property where people deserve a property right. Conceived in the seventeenth century, it espouses that people are entitled to the fruits of their labor. [22]
People have a property interest in their person, so they also own value produced through the investment of their labor. [23]
For example, a corn farm owner must compensate their farmworkers because the farmworkers have invested labor into the farmland to produce corn. Therefore, the farmworkers deserve to be compensated for that value. Locke Labor Theory asserts that there are enough resources available to afford property rights in proportion with the labor each individual invests. [24]
However, people are only entitled to property rights equal to the value of the labor they put into the property. [25]
For example, the farmworkers are not entitled to the entire farm on the sole basis that they contributed to its yield. Also, the contribution must constitute more than a
de minimis
contribution to the value of the whole.sup>
< [26]
So the farmer’s neighbor, who tossed a glass of water onto the cornfield during the rainy season, does not deserve to be compensated like the farmworkers do. Finally, granting someone a property right is only justified so long as “there is enough, and as good left in common for others.”< [27]
Do we deserve property interests in our data?
Under Locke Labor Theory, consumers are entitled to their data insofar as they have contributed labor to it. Consumers’ use of the platforms’ services constitutes labor because without the constant interaction from consumers, platforms would not be able to refine their algorithms and sell advertising space. Platforms may argue that this is a
de minimis
contribution because user interaction with their services pales in comparison to the number of engineering hours put toward writing their predictive algorithms. However, those contributions comprise the raw data that is essential to training and testing targeted
advertising
algorithms. In other words, the efforts are not
de minimis
because, unlike the farmer’s neighbor, whose cup of water was not necessary to sustain the cornfield, predictive algorithms could not function without consumer data.br>
Platforms may also argue that consumers do not assert enough effort in using their platforms to justify a property right. After all, how hard could using social media or surfing the web actually be? However, consumers spend three hours and 48 minutes a day on their phones, 62% of that time on social media,< [28]
and check their phones 42-86 times a day. [29]
The effort over the sheer amount of time that people dedicate to contributing data to platforms can serve as a basis for propertization under Locke Labor Theory. Moreover, Locke Labor Theory never elevates certain types of effort over others, so as long as consumers exert effort to contribute to predictive algorithms’ value, they deserve a property right.br>
How much of an interest do we deserve?
Nevertheless, Locke Labor Theory only justifies providing a property right strong enough for consumers to extract the value of their labor from the data;
no more, no less. This introduces a couple of limiting principles. First, platforms would also deserve to be compensated under this justification. Platforms capture and store the data. [30]
They also engineer the predictive algorithms. Under the Locke Labor theory,
this practice is at least of equal value in the monetization of data to the act of providing the data itself. Finally, the property right must be limited to ensure that enough and as good is left over for others. Because the data is worth more as a whole than it is broken up,< [31]
allowing consumers to unilaterally block the platforms’ use of it may be an unjustifiably strong interest under Locke Labor Theory. [32]
As discussed further below, it is possible that the existing data-for-access will satisfy any property interest granted on a Locke Labor Theory justification.

Conversely, the Utilitarian justification for propertization does not rely on desert. Instead, it justifies propertization where its benefits outweigh the inefficiencies. [33]
There are two market failures in the current data-for-access model that propertization of data can ameliorate: deficiencies in consumer autonomy and privacy. Limitations to data property rights can manage inefficiencies while maintaining the benefits introduced by propertization. Therefore, Utilitarian Theory justifies a property right in data. Further, because Utilitarian Theory accounts for all benefits, not just consumer desert, property rights may be stronger under this theory than under Locke Labor Theory.
The Utilitarian Theory.br>Utilitarian Theory justifies property insofar as maximizes benefits and minimizes inefficiencies. This “anti-desert” argument focuses on societal values instead of individual desert. [34]

There are two definitions of benefit. Some contemporary scholars find benefits outside of purely economic benefits, such as citizen satisfaction with society at large. [35]
Others find a benefit where propertization leads to efficient flow of wealth in the market. [36]
Under this outlook, propertization should protect finite resources and encourage innovation. [37]
Utilitarian Theory balances benefits and inefficiencies by internalizing externalities. [38]
The tragedy of the commons is the typical example how propertization can productively do this. Imagine there is a carrot patch open to the entire community. [39]

While this may seem utopian, community members are incentivized to pick as many carrots as possible before their neighbors get a chance to. However, then all the carrots will be gone from the patch before any have a chance to spread seeds, and the resource is depleted. Providing a property right over the carrot patch will allow one person or entity to ensure that the carrots are not all picked before they have an opportunity to grow back. While the owner would have to take on the sole burden of caring for the patch, she is incentivized to do so because she can sell carrots for a profit.

The tragedy of the commons metaphor does not have a one-to-one translation into cyber space because data is non-rivalrous and non-exclusive. [40]
It is non-rivalrous because, unlike the carrots in the patch where the carrot is gone after one person eats it, platforms and consumers may simultaneously use data. [41]
It is non-exclusive because, unlike the carrots in the patch that can be protected by a fence, consumers cannot psychically exclude platforms from accessing data once platforms are exposed to that data. [42]
However, there are externalities that propertization may address. These externalities include injury to consumer autonomy in market participation and reduction in consumer privacy. The benefits that flow from reducing these externalities must be balanced with inefficiencies that flow from propertization, such as impeding innovation, inefficiencies in marketing, the tragedy of the anti-commons, and restrictions on free expression. Although these are legitimate concerns, the benefits ultimately outweigh the inefficiencies and justify propertization under a Utilitarian theory.
Weighing the benefits.br>Effectuating a digital dividend through propertization induces increased consumer autonomy as a direct benefit and increased consumer privacy as an indirect benefit. These benefits sit on the side of the Utilitarian scale in favor of propertization. Allowing consumers to trade their property rights for compensation increases consumer autonomy as participants in the two-sided market. This will address consumer concerns that they are platform products instead of platform consumers by providing them an active role in the data marketplace. [43]

First, propertization allows consumers to monetize their data instead of agreeing its worth is equivalent to the price of admission to the platforms’ services. [44]

Second, propertization can increase consumer awareness of the value of data. [45]
Consumers can monitor the value of their own data as well as the value of other consumers’ data if data is traded on an open market. [46]
Finally, all consumers can participate in the data trade regardless of socioeconomic status. [47]
This allows consumers the opportunity to negotiate with the platforms even if they do not carry inordinate amounts of societal influence.
Additionally, propertization of data would increase consumer autonomy in the two-sided market by requiring more transparency. If platforms must acquire consent before using consumer data to develop their algorithms, consumers will be informed of all the ways the platforms use consumer data. [48]
Of course, it is unlikely that all consumers will actually read the highly technical methodologies before agreeing to the “terms and conditions of use,” and even if they do they may not have the power to change them. [49]
But if the information is available, then policy makers will be able to access it. [50]
Platforms will no longer be able to obscure their methodologies under the guise that they have full ownership of consumer data. [51]
Effectuating a digital dividend through propertization will also indirectly benefit consumer privacy. In fact, data propertization is mostly championed by privacy advocates. [52]
Consumers are too willing to exchange their personal information for free services, which diminishes privacy. [53]
Further, platforms have no incentive to implement privacy protection because they are receiving troves of data for no cost, which they use to profit off of advertising services. [54]This is a market failure because none of the parties have incentives to protect privacy, which we value as a society. [55]
There are several aspects of the current data market that induce this failure. First, there is an information imbalance such that consumers do not know the extent to which platforms hold their private data. [56]
Without information on how their data is used, consumers cannot push back against uses they are not comfortable with. Propertizing data addresses this aspect because in order to obtain consent, the platforms must disclose what they plan to do with the data. [57]
Second, even when consumers are exposed to the extreme ways platforms use their data, they are still unwilling to forsake exchanging privacy for services. [58]
This is because there is only one option for consumers: exchange data for free access. [59]

Unfortunately for consumers, the platforms’ services are too ubiquitous to effectively avoid, which motivates consumers to trade privacy. [60]
Propertization of data addresses this concern by introducing a third option: bargaining. This will provide an avenue for consumers to negotiate for consumer-friendly privacy terms while maintaining access to the platforms’ services. Moreover, informing users of the true value of their data by having platforms compete among each other for access will disincentivize consumers from selling it to platforms that will abuse it. [61]
In turn, platforms will be incentivized to develop better privacy policies to attract more users.
Third, even those consumers who currently take steps toward protecting their privacy spend “inordinate amounts of time and effort” in doing so due to their lack of bargaining power. [62]
Propertization of data removes the burden of deciphering the most effective way to keep platforms from violating privacy. A property right would give consumers a clear avenue through which they can control their data. [63]
They simply need to deny the use of their data to any platform they wish to avoid. This clarity makes it easier for consumers to enforce their rights, because they know exactly what rights they have and can tell when those rights are being infringed upon. [64]












Fourth and finally, unlimited access to data encourages companies to overinvest in consumers who do not want to be contacted. [65]
Propertization will provide consumers who do not wish to be contacted with the ability to make the cost of contacting them higher. They may simply assert a higher exchange rate for their property right, which will disincentivize unwanted requests to access their data. [66]
In sum, propertization can address the market failures in the current data-for-access structure that give rise to decreased user autonomy and privacy.br>
Balancing the inefficiencies.
Under Utilitarian Theory, the benefits of propertization must be balanced with the inefficiencies that propertization introduces. These inefficiencies include decreasing innovation, reducing efficiencies in advertising, inducing a tragedy of the anti-commons, and dampening free speech.
Propertization of data may decrease innovation by making the two-sided market business model less attractive. If platforms are required to obtain consent, they may become bogged down with tracking rights implicated by the use of large data sets.sup>
< [67]
This could disincentivize innovators from using the two-sided market business model to create new platforms that consumers can access for free. However, allowing consumers a seat at the table does not preclude innovators from making profits. Platforms will not be forced to trade away all of their profits if data is propertized. They can set a reasonable exchange rate. While propertizing data would certainly make the two-sided market structure more challenging, there would still be incentives to structure businesses in that way. Creating a new market where consumers have a seat at the table will force the platforms to come up with innovative new business models that account for consumer need.
Platforms may also argue that allowing users to withdraw consent will make advertising less efficient. In a blog post, the Vice President of Facebook wrote “[w]e use this information to understand what you might be interested in and hopefully show you ads that are relevant.”< [68]
It follows that allowing users to withdraw consent would remove this efficiency and subject consumers to advertisements they may not be interested in. The problem with this logic is that it assumes “consumers [necessarily] bring all their preferences fully formed to the marketplace.”< [69]
Targeted ads increase the risks that consumers under-invest in developing their own tastes if they are always provided with advertisements of products they already want. [70]
Data propertization also risks inducing the tragedy of the anti-commons. The tragedy of the anti-commons occurs when multiple people have the right of exclusion over a single piece of property. [71]
Here, the common piece of property would be the aggregate data set necessary to develop accurate predictive models. Consumers may choose to exclude platforms from accessing their data without considering the effect on society at large. [72]
If all consumers choose to withhold their data, the platforms will not be able to effectively develop their predictive algorithms. As a result, marketing companies will not pay for targeted ads. The whole industry will be imperiled. [73]
Even if only a substantial portion of consumers withhold data, the predictive algorithms will lose their power and the targeted advertisements will be less valuable.br>
However, the possibility of receiving compensation from the platforms incentivizes consumers to provide consent. This reduces the benefits derived from withholding their rights. Moreover, the current structure still incentivizes people to withdraw from the market. In 2018, 44% of Facebook users between the ages of 18-29 deleted their Facebook entirely as a result of Facebook’s data use. [74]
Additionally, 74% of users took steps to reduce Facebook’s access to their data. [75]Introducing the option to pay for services will incentivize users to stay on these platforms and could actually expand access to data.
Finally, propertization of data may negatively impact free speech by confining the free-flow of information. [76]
If individuals and corporations are allowed to control the data they generate, they may block the public’s access to this information. [77]
However, property rights may be limited by important public policy considerations. [78]
For example, Margaret Radin argues that free speech considerations would comprise a barrier to the enforcement of any data property right. [79]
By properly carving out public policy considerations, propertization and the free flow of information can coexist.
How much propertization?
Utilitarian Theory justifies propertization until the inefficiencies outweigh the benefits. [80]
Currently, users are passive players in the data market.br>
Propertization will get consumers off of the bench, by showing them the true worth of their data and providing an incentive for them to be active in the market, the incentive of trading for a digital dividend. Also, it can give consumers a bargaining chip that will allow them to negotiate better privacy terms for their data. To the offeror of the best privacy terms go the spoils! However, the property right created in data must preserve the incentive to actually trade that data. Stagnation in the market will introduce the feared inefficiencies. Therefore, any property right given must incentivize users to trade for the terms that most honor values like autonomy and privacy.br>

Currently, the two-sided market business model provides free access to services for consumers in exchange for permission to use their data. A digital dividend would signify a change from that business model, where consumers would instead be compensated for their data through the trade of a property right. Both Locke Labor Theory and Utilitarian Theory justify a property right, but only Utilitarian Theory envisions a property right strong enough to change from the status quo to a digital dividend. While other works discuss how both theories justify a property right, none do an in-depth analysis on the extent to which each theory justifies this right. This essay now does so.
Under Locke Labor Theory, the consumer would only be entitled to the value their labor contributes to targeted advertisements. [81]
However, the platforms invest labor into the targeted advertisements as well. They collect, store, and engineer the algorithms.sup>
< [82]
Arguably, their labor comprises so much of the target advertisements’ value that a property right where the consumer could unilaterally block the platforms’ use of that data would not be equal to the value consumer labor creates. Without the right to block access, users would not be able to negotiate favorable terms.br>
Meanwhile, the current data-for-access framework already compensates users by allowing them free access to the platforms.
Moreover, the Locke Labor Theory could not justify propertizing all data. There are three types of data that participate in the two-sided market: volunteered, observed, and inferred. [83]


Consumers deserve a property right in the volunteered data because that data is generated through their interaction with the platforms. Conversely, observed data and inferred data are generated by platform observation and engineering, respectively, and consumer labor is further removed. [84]
Under Locke Labor Theory a meaningful property right can only be found in volunteered data.
Meanwhile, Utilitarian Theory would justify propertization of data that does more than just compensate users for what they deserve. Instead, a property right would be justified through a cost-benefit analysis. [85]
Utilitarian theory would support a property interest on the basis of important values like privacy and autonomy. These concepts are valuable for reasons other than the amount of labor the consumer invested into the monetization of their data. Moreover, values like privacy and autonomy are not being realized in the current data-for-access market model. [86]
These market failures justify a shift from the current access-for-data model to a revolutionary new idea, the digital dividend.

Utilitarian Theory is a better justification for effectuating a digital dividend through data propertization. It will allow advocates to advance stronger rights that address problems beyond consumer desert. Ultimately, the justification behind propertization is important because it will shape the rhetoric that advances the digital dividend policy goal. Rhetoric around desert may be attractive because it is normatively wrong to deny people what they deserve. However, a deeper analysis shows that there are important reasons beyond user desert to propertize data, such as consumer autonomy and privacy. A desert-based rhetoric will not allow a property right that accounts for these concerns. If this rhetoric shapes policy, leaving out the other concerns, propertization will not rise to its true potential. However, rhetoric using Utilitarian justifications can support a revolutionary idea like a digital dividend because the market failures it bemoans are not addressed by the status quo.