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• Erik Brynjolfsson

An alternative approach is to estimate the consumer surplus from IT investments by integrating the area under the demand curve for IT. This methodology does not directly address the question of whether managers and consumers are purchasing the optimal quantity of IT, but rather assumes their revealed willingness-to-pay for IT is an accurate indicator of their preferences. Using data from the US. Bureau of Economic Analysis, we estimate four measures of consumer welfare, including Marshallian surplus, exact surplus based on compensated (Hicksian) demand curves, a non-parametric estimate, and a value based on the theory of index numbers. Interestingly, all four estimates indicate that in our base year of 1987, IT spending generated approximately $50 billion to $70 billion in net value in the US. Our estimates imply that the value created for consumers from spending on IT is about three times as large as the amount paid to producers of IT equipment, providing a new perspective on the IT value debate.

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Paper provided by MIT Center for Coordination Science in its series Working Paper Series with number 161.

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Date of creation: Jan 1994
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Handle: RePEc:wop:mitccs:161

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1. Bayoumi, Tamim & Haacker, Markus, 2002. "It's Not What You Make, It's How You Use IT: Measuring the Welfare Benefits of the IT Revolution Across Countries," CEPR Discussion Papers 3555, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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   • Tamim Bayoumi & Markus Haacker, 2002. "It's Not What You Make, It's How You Use IT: Measuring the Welfare Benefits of the IT Revolution Across Countries," IMF Working Papers 02/117, International Monetary Fund. [Downloadable!]
   • Tamim Bayoumi & Markus Haacker, 2002. "Its Not What You Make, Its How You Use IT: Measuring the Welfare Benefits of the IT Revolution Across Countries," CEP Discussion Papers dp0548, Centre for Economic Performance, LSE. [Downloadable!]

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