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Empirical validation of Metcalfe’s law: How Internet usage patterns have changed over time

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  • Madureira, António
  • den Hartog, Frank
  • Bouwman, Harry
  • Baken, Nico

Abstract

Few doubt that Digital Information Networks (DINs) such as the Internet constitute the basis of a new technology-driven economic era. A large body of literature tries to understand and quantify the value of DINs to help policy makers justify investments in new or improved infrastructures. The prevailing methodological approach is to depict DINs as an observable production input changing the uncertainty regarding the performance of an economic system. In such context, the value of DINs is typically measured with regression techniques between the penetration rate of DINs and economic growth. This approach provides too little insight on the actual causality between DINs and economic value. We recently developed a framework that identified 13 different ways (“capabilities”) how users convert information into economic value. In this article, we show how a simple quadratic relation (Metcalfe’s law) can be used to quantify how adequate these capabilities are in converting the ability to access information into economic value. To our knowledge, this is the first time that Metcalfe’s law is empirically validated as such.

Suggested Citation

  • Madureira, António & den Hartog, Frank & Bouwman, Harry & Baken, Nico, 2013. "Empirical validation of Metcalfe’s law: How Internet usage patterns have changed over time," Information Economics and Policy, Elsevier, vol. 25(4), pages 246-256.
  • Handle: RePEc:eee:iepoli:v:25:y:2013:i:4:p:246-256
    DOI: 10.1016/j.infoecopol.2013.07.002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Leo Hove, 2014. "Metcalfe’s law: not so wrong after all," Netnomics, Springer, vol. 15(1), pages 1-8, July.
    2. David Lambert & Fabio Vanni, 2017. "Complexity and Heterogeneity in a Dynamic Network," LEM Papers Series 2017/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    3. Leo Van Hove, 2016. "Measuring the value of mobile telecommunications networks," Netnomics, Springer, vol. 17(3), pages 191-222, November.
    4. Van Hove, Leo, 2016. "Testing Metcalfe's law: Pitfalls and possibilities," Information Economics and Policy, Elsevier, vol. 37(C), pages 67-76.
    5. A. Madureira & F. Hartog & N. Baken, 2016. "A holonic framework to understand and apply information processes in evolutionary economics: survey and proposal," Netnomics, Springer, vol. 17(2), pages 157-190, September.

    More about this item

    Keywords

    Telecommunications; Value of digital information networks; Eurostat data; Metcalfe’s law;

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • D2 - Microeconomics - - Production and Organizations
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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