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Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet

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  • Austan Goolsbee
  • Peter J. Klenow

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11995.

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Date of creation: Feb 2006
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Publication status: published as Goolsbee, Austan and Peter J. Klenow. "Valuing Consumer Products By The Time Spend Using Them: An Application To The Internet," American Economic Review, 2006, v96(2,May), 108-113.
Handle: RePEc:nbr:nberwo:11995

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  1. Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, 03.
  2. Mark Aguiar & Erik Hurst, 2005. "Consumption versus Expenditure," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 919-948, October.
  3. Aviv Nevo, 2001. "New Products, Quality Changes and Welfare Measures Computed From Estimated Demand Systems," NBER Working Papers 8425, National Bureau of Economic Research, Inc.
  4. Jerry Hausman, 1997. "Cellular Telephone, New Products and the CPI," NBER Working Papers 5982, National Bureau of Economic Research, Inc.
  5. Goolsbee, Austan & Klenow, Peter J, 2002. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 317-43, October.
  6. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
  7. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1.
  8. Downes, Tom & Greenstein, Shane, 2002. "Universal access and local internet markets in the US," Research Policy, Elsevier, vol. 31(7), pages 1035-1052, September.
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Cited by:
  1. Jeremy Greenwood & Karen A. Kopecky, 2013. "Measuring The Welfare Gain From Personal Computers," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 336-347, 01.
  2. Jeremy Greenwood & Karen A. Kopecky, 2011. "Measuring the Welfare Gain from Personal Computers: A Macroeconomic Approach," RCER Working Papers 559, University of Rochester - Center for Economic Research (RCER).
  3. Alcalá, Francisco, 2009. "Time, Quality and Growth," UMUFAE Economics Working Papers 4811, DIGITUM. Universidad de Murcia.
  4. PENARD Thierry & POUSSING Nicolas & SUIRE Raphaël, 2011. "Does the Internet make people happier?," CEPS/INSTEAD Working Paper Series 2011-41, CEPS/INSTEAD.
  5. Walid Hadhri & Mohamed Ayadi & Adel Ben Youssef, 2012. "Difference between Adoption and Access Frequency to Internet and Consumer Surplus," Post-Print halshs-00937177, HAL.
  6. Hersh, Jonathan & Voth, Hans-Joachim, 2009. "Sweet Diversity: Colonial Goods and the Rise of European Living Standards after 1492," CEPR Discussion Papers 7386, C.E.P.R. Discussion Papers.
  7. Pollock, R., 2009. "The Economics of Public Sector Information," Cambridge Working Papers in Economics 0920, Faculty of Economics, University of Cambridge.
  8. Punj, Girish, 2012. "Income effects on relative importance of two online purchase goals: Saving time versus saving money?," Journal of Business Research, Elsevier, vol. 65(5), pages 634-640.
  9. Gerben Bakker, 2014. "Soft power: the media industries in Britain since 1870," Economic History Working Papers 56333, London School of Economics and Political Science, Department of Economic History.
  10. De Vries, Gary & De Vries, Pierre, 2007. "The Role of Licence-Exemption in Spectrum Reform," MPRA Paper 6847, University Library of Munich, Germany.
  11. Michelle Connolly & James Prieger, 2009. "Economics at the FCC, 2008–2009: Broadband and Merger Review," Review of Industrial Organization, Springer, vol. 35(4), pages 387-417, December.
  12. Girish Punj, 2013. "Do consumers who conduct online research also post online reviews? A model of the relationship between online research and review posting behavior," Marketing Letters, Springer, vol. 24(1), pages 97-108, March.
  13. Maxime Agbo & Marc Santugini & Jonathan W. Williams, 2012. "Screening with Congestion," Cahiers de recherche 1239, CIRPEE.

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