Sequential compliance decisions of firms on cross-border data flows: An institutionally anchored decision support system

2026-07-12

AI Summary

This study addresses the sequential decision-making challenge firms face under stringent regulatory regimes when balancing compliance costs against data value in cross-border data flows. The authors propose a regime-anchored decision support system that translates regulatory requirements into computable minimal compliance mappings and models weekly corporate decisions via a finite-horizon Markov decision process, treating compliance as a hard constraint rather than a penalty term. Innovatively integrating masked deep reinforcement learning with counterfactual path advantage analysis, the framework enables efficient optimization and interpretable decision-making while supporting transferability across jurisdictions. Experimental results demonstrate that the learned policies outperform baseline approaches, exhibit high interpretability and auditability, and uncover key behavioral patterns such as an “absorb–adjust” effect and dynamic shifts in localization boundaries.

Abstract

The economic value of data arises from its flow across organizations and national borders. Yet increasingly stringent data governance regimes are turning cross-border transfer into an institutionally constrained sequential decision, in which firms repeatedly weigh compliance costs against the value of data flows. From the perspective of a data-exporting firm, this paper develops an institutionally anchored decision support system. It converts regulatory rules into a computable minimal compliance mapping and models the firm's weekly decisions as a finite-horizon Markov decision process (MDP), with compliance represented as a hard constraint rather than a penalty term. The resulting problem is solved using masked deep reinforcement learning, while counterfactual path advantages provide interpretable signals to support the firm's cross-border data flow decisions. Experiments show that the policies learned within the system outperform the baselines considered and deliver interpretable, auditable decision support. Local processing concentrates in states where the business value of small lawful transfers does not cover their compliance costs, and the localization boundary shifts systematically as the regime tightens. Credential acquisition is front-loaded within the compliance year, and shallow decision trees reproduce the policy's decisions with high fidelity. Treating the persistent-friction weight as a continuous representation of regulatory strictness further reveals an absorb-then-adjust pattern, in which expected rewards decline before observable behavior changes, implying that assessments based only on behavioral indicators may understate the burden already borne by firms. Moreover, the system is not tied to any specific regulation and can be transferred to other jurisdictions and rule-based compliance problems.

Problem

• cross-border data flows
• compliance decisions
• data governance
• sequential decision-making
• regulatory constraints

Innovation

• masked deep reinforcement learning
• Markov decision process
• compliance mapping
• counterfactual path advantages
• institutionally anchored decision support