Abstract: To make the best of the principle of “those who make an investment and contribution are supposed to benefit” as set out in “Data 20”, government authorities and data exchanges have to find out how to effectively motivate firms to invest in the development of data products and enhance their participation in the data market. This paper extends traditional moral hazard theory to the two-sided market setting, and analyzes the optimal incentive measures of data exchanges and their impacts. The results indicate that: (1) in a two-sided market environment since buyers also benefit from developers’ efforts in data product development, the cost of these efforts may be transferred to the membership fees that exchanges charge buyers; (2) when determining the incentive measures, data exchanges should consider the network effects between developers and buyers, and an increase in the strength of marginal network effects can contribute to the improvement of welfare for each participant in the market; (3) as subsidy levels increase, product subsidies lead to a higher improvement in social welfare than listing registration subsidies. This study enriches the analytical frameworks of traditional incentive theory and two-sided market theory, and provides a theoretical reference for data exchanges in motivating firms to invest in the development of data products.

Key words: data product development, incentive mechanism, moral hazard, data exchanges, two-sided markets