Abstract
This paper studies how data analysis technology impacts inequality in capital costs (ICC). We build a noisy rational expectations model with data budget, data supply, and the heterogeneous marginal value of firms’ data. We find that the growth in data analysis technology exacerbates ICC by crowding out investors’ attention on the firm with a low marginal value of its data. The widening gap in the marginal value of data between different firms amplifies this crowding-out effect and further exacerbates ICC. Increasing investors’ data budget can effectively mitigate ICC when the marginal value of data exceeds the specific threshold.
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