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Bill St. Arnaud is a R&E Network and Green IT consultant who works with clients on a variety of subjects such as the next generation research and education and Internet networks. He also works with clients to develop practical solutions to reduce GHG emissions such as free broadband and dynamiccharging of eVehicles (See . View my complete profile

Monday, June 11, 2007

How much value does the Internet deliver to consumers, an economist's view

[From a posting on Dewayne Hendricks list -- BSA]
[Note: This item comes from reader Charles Jackson. DLH]

From: "Charles Jackson"

Interesting paper:

Valuing Consumer Products by the Time Spent Using Them: An
Application to the Internet
by Austan Goolsbee, Peter J. Klenow

NBER Working Paper No. 11995
Issued in February 2006
NBER Program(s): EFG IO PR

---- Abstract -----

For some goods, the main cost of buying the product is not the price
but rather the time it takes to use them. Only about 0.2% of consumer
spending in the U.S., for example, went for Internet access in 2004
yet time use data indicates that people spend around 10% of their
entire leisure time going online. For such goods, estimating price
elasticities with expenditure data can be difficult, and, therefore,
estimated welfare gains highly uncertain. We show that for time-
intensive goods like the Internet, a simple model in which both
expenditure and time contribute to consumption can be used to
estimate the consumer gains from a good using just the data on time
use and the opportunity cost of people's time (i.e., the wage). The
theory predicts that higher wage internet subscribers should spend
less time online (for non-work reasons) and the degree to which that
is true identifies the elasticity of demand. Based on expenditure and
time use data and our elasticity estimate, we calculate that consumer
surplus from the Internet may be around 2% of full-income, or several
thousand dollars per user. This is an order of magnitude larger than
what one obtains from a back-of-the-envelope calculation using data
from expenditures.