In this Mint article, Niranjan Rajyadhyaksha, Research Director and Senior Fellow at IDFC Institute, writes about the growing use of digital data in economic analysis and how it will revolutionise public policy in the coming future.

Niranjan writes about international experiences particularly in the private sector and how this has spillovers in the policy space. He says, "The growing role of economists in technology companies can be explained by the ubiquity of data as well as the power of computing. That is not all. Economists now have another role besides trawling through an ocean of customer data to find patterns. Economists have played a central role in the design of many online markets.

Just consider the way we use Uber compared to the way we use Airbnb. Uber has a centralized matching system. Its algorithm matches customers with cab drivers because we care more for a ride than the specific details of the taxi. The choice architecture is necessarily different when it comes to booking apartments for a vacation. The specific details of the house matters. So, Airbnb has a decentralized system of choice in which the customer rather than the algorithm picks the house.

There is something common as well. Both Uber and Airbnb have built ratings systems to build trust. Is the taxi driver known for rash driving? Is the stranger seeking to rent my place for a week notorious for leaving behind a trail of damages? Ratings help beat such information asymmetries—and create the trust that is essential in functioning markets. A lot of economic design has gone into these online markets."

He goes on to give examples where big data has been used for public policy analysis in India, "Indian public policy is also getting into the act. The Reserve Bank of India is setting up a data sciences lab. Economists at the finance ministry have already used big data analytics to chart our patterns of internal migration (using data from the railways computerised bookings system) and interstate trade (using preliminary data from the Goods and Services Tax Network). The Economic Survey released in August 2017 cited work by my colleagues at IDFC Institute based on satellite images to show how the density of built-up area in the Kozhikode Metropolitan Area spread between 1975 and 2014."

He ends this article by sharing three interesting papers that provide more details for an interested reader.

"1. Big Data And Measurement: From Inflation To Discrimination by Roberto Rigobon, Suresh Tendulkar Memorial Lecture

2. Peer-To-Peer Markets by Liran Einav, Chiara Farronato and Jonathan Levin, National Bureau of Economic Research

3. Economists (And Economics) In Tech Companies by Susan Athey and Michael Luca,Journal Of Economic Perspectives "

Read the full article here