[CAnet - news] How much value does the Internet deliver to consumers, an economist's view

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

From: "Charles Jackson" 

Interesting paper:  <http://www.nber.org/papers/w11995>

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.

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