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Estimating the Welfare Effects of Digital Infrastructure

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  • Shane M. Greenstein
  • Pablo T. Spiller

Abstract

While much economic policy presumes that more information infrastructure yields higher economic returns, little empirical work measures the magnitudes of these returns. We examine investment by local exchange telephone companies in fiber optic cable, ISDN lines and signal seven software, infrastructure which plays an essential role in bringing digital technology to local telephone networks. We estimate the elasticity of the derived demand for infrastructure investment faced by local exchange companies, controlling for factors such as local economic activity and the political disposition of state regulators. Our model postulates a regulated profit maximizing local exchange firm and a regulatory agency with predetermined political leanings in favor of consumer prices or firm profits. The model accounts for variation in state regulation and local economic conditions. In all our estimates we find that consumer demand is sensitive to investment in modern infrastructure, particularly as represented by fiber optic cable. Our estimates imply that infrastructure investment is responsible for a substantial fraction of the recent growth in consumer surplus and business revenue in local telecommunication services.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5770.

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Date of creation: Sep 1996
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Handle: RePEc:nbr:nberwo:5770

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  1. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
  2. Levy, Brian & Spiller, Pablo T, 1994. "The Institutional Foundations of Regulatory Commitment: A Comparative Analysis of Telecommunications Regulation," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 10(2), pages 201-46, October.
  3. Bresnahan, Timothy F, 1986. "Measuring the Spillovers from Technical Advance: Mainframe Computers inFinancial Services," American Economic Review, American Economic Association, vol. 76(4), pages 742-55, September.
  4. Lewis, T.R. & Sappington, D.E.M., 1988. "Oversight Of Long-Term Investment By Short-Lived Regulators," Papers, California Davis - Institute of Governmental Affairs 325, California Davis - Institute of Governmental Affairs.
  5. Cronin, Francis J. & Parker, Edwin B. & Colleran, Elisabeth K. & Gold, Mark A., 1993. "Telecommunications infrastructure investment and economic development," Telecommunications Policy, Elsevier, Elsevier, vol. 17(6), pages 415-430, August.
  6. Cronin, Francis J. & Colleran, Elisabeth K. & Herbert, Paul L. & Lewitzky, Steven, 1993. "Telecommunications and growth : The contribution of telecommunications infrastructure investment to aggregate and sectoral productivity," Telecommunications Policy, Elsevier, Elsevier, vol. 17(9), pages 677-690, December.
  7. Lehr, W. & Noll, R.G., 1989. "Isdn And The Small User: Regulatory Policy Issues," Papers, Stanford - Studies in Industry Economics 150, Stanford - Studies in Industry Economics.
  8. Dholakia, Ruby Roy & Harlam, Bari, 1994. "Telecommunications and economic development: Econometric analysis of the US experience," Telecommunications Policy, Elsevier, Elsevier, vol. 18(6), pages 470-477, August.
  9. Pablo T. Spiller & Ingo Vogelsang, 1997. "The Institutional Foundations of Regulatory Commitment in the UK: The Case of Telecommunications," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 153(4), pages 607-, December.
  10. Spiller, Pablo T. & Urbiztondo, Santiago, 1994. "Political appointees vs. career civil servants: A multiple principals theory of political bureaucracies," European Journal of Political Economy, Elsevier, vol. 10(3), pages 465-497, October.
  11. Hardy, Andrew P., 1980. "The role of the telephone in economic development," Telecommunications Policy, Elsevier, Elsevier, vol. 4(4), pages 278-286, December.
  12. Greenstein, Shane M & Spiller, Pablo T, 1995. "Modern Telecommunications Infrastructure and Economic Activity: An Empirical Investigation," Industrial and Corporate Change, Oxford University Press, vol. 4(4), pages 647-65.
  13. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, Ekim.
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Cited by:
  1. Karen Eggleston & Robert Jensen & Richard Zeckhauser, 2002. "Information and Communication Technologies, Markets and Economic Development," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0203, Department of Economics, Tufts University.
  2. Hazlett, Thomas W. & Muñoz, Roberto E., 2009. "Spectrum allocation in Latin America: An economic analysis," Information Economics and Policy, Elsevier, vol. 21(4), pages 261-278, November.
  3. Correa, Lisa, 2006. "The economic impact of telecommunications diffusion on UK productivity growth," Information Economics and Policy, Elsevier, vol. 18(4), pages 385-404, November.
  4. Anselm Mattes & Philipp Meinen & Ferdinand Pavel, 2012. "Goods Follow Bytes: The Impact of ICT on EU Trade," Discussion Papers of DIW Berlin 1182, DIW Berlin, German Institute for Economic Research.
  5. Ward, Michael R. & Zheng, Shilin, 2014. "Mobile telecommunications infrastructure and economic growth: Evidence from China," 25th European Regional ITS Conference, Brussels 2014 101405, International Telecommunications Society (ITS).
  6. Lars-Hendrik Röller & Leonard Waverman, 1996. "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 96-16, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  7. Gunnar Eliasson, 2011. "Advanced purchasing, spillovers and innovative discovery," Journal of Evolutionary Economics, Springer, vol. 21(1), pages 121-139, February.
  8. Shane M. Greenstein & Mercedes M. Lizardo & Pablo T. Spiller, 1997. "The Evolution of Advanced Large Scale Information Infrastructure in the United States," NBER Working Papers 5929, National Bureau of Economic Research, Inc.
  9. Madden, Gary G & Coble-Neal, Grant, 2002. "Internet economics and policy: An Australian perspective," MPRA Paper 10686, University Library of Munich, Germany.

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