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The Adoption of Network Goods: Evidence from the Spread of Mobile Phones in Rwanda

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  • Daniel Björkegren

Abstract

This article develops a method to estimate and simulate the adoption of a network good. I estimate demand for mobile phones as a function of individuals’ social networks, coverage, and prices, using transaction data from nearly the entire network of Rwandan mobile phone subscribers at the time, over 4.5 years. I estimate the utility of adopting a phone based on its eventual usage: subscribers pay on the margin, so calls reveal the value of communicating with each contact. I use this structural model to simulate the effects of two policies. A requirement to serve rural areas lowered operator profits but increased net social welfare. Developing countries heavily tax mobile phones, but standard metrics that neglect network effects grossly understate the true welfare cost in a growing network, which is up to 3.12 times the revenue raised. Shifting from handset to usage taxes would have increased the surplus of poorer users by at least 26%.

Suggested Citation

  • Daniel Björkegren, 2019. "The Adoption of Network Goods: Evidence from the Spread of Mobile Phones in Rwanda," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(3), pages 1033-1060.
    • Handle: RePEc:oup:restud:v:86:y:2019:i:3:p:1033-1060.
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    File URL: http://hdl.handle.net/10.1093/restud/rdy024
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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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