I would recommend to just go with what you find most productive for yourself, but since you wanted a list:

Paper:

Pros:

Can be used almost anywhere
Cheap, simple, reliable
Easy to arrange how you want it
No sudden data loss (unless actually lost)
Lets you draw a little sketch on the side
Won't die on you if it gets a bit wet
Probably wont get stolen

Cons:

Can cramp your hands faster
Harder to edit
Often doesn't leave room for inserting new things in the middle
Increases in bulk over time

Digital:

Pros:

Insert, update, rearrange (or the dreaded delete) at any place in the document
Quick access to spell check, dictionary, thesaurus
When combined with something like Dropbox, all your internet-enabled devices can be used

Also works as a backup

Instant word count
Can format it right then and there (if you're into that)
Instantly sharable over the internet
When combined with a Version Control System (Git is a favourite of mine), it's easy to branch/fork/draft a story in multiple directions.

Also lets you share and edit with multiple authors easier

Cons:

Need to keep a device on you and charged up
Distractions said device can bring along with it
Can sometimes be a little too helpful (red squiggle invasion!)
Gives you too many formatting options to waste time on
When it's gone, it's gone! Backups might not always be there
Inadvisable to use in wet environments
Could get stolen
Microsoft Word is a terrible file format (don't use it!)

I myself prefer digital (Dropbox + iPhone!), but YMMV.

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