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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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    Citations

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    Cited by:

    1. Arthur Blouin & Sharun W. Mukand, 2019. "Erasing Ethnicity? Propaganda, Nation Building, and Identity in Rwanda," Journal of Political Economy, University of Chicago Press, vol. 127(3), pages 1008-1062.
    2. Joël Cariolle, 2018. "Telecommunication Submarine-Cable Deployment and the Digital Divide in Sub-Saharan Africa," CESifo Working Paper Series 7415, CESifo.
    3. Björkegren, Daniel & Karaca, Burak Ceyhun, 2022. "Network adoption subsidies: A digital evaluation of a rural mobile phone program in Rwanda," Journal of Development Economics, Elsevier, vol. 154(C).
    4. Jianjing Lin, 2023. "To follow the market or the parent system: Evidence from health IT adoption by hospital chains," Economic Inquiry, Western Economic Association International, vol. 61(4), pages 891-910, October.
    5. Joël Cariolle & David A Carroll, 2020. "Digital Technologies for Small and Medium Enterprises and job creation in Sub-Saharan Africa," Working Papers hal-03004583, HAL.
    6. Jin‐Hyuk Kim & Peter Newberry & Liad Wagman & Ran Wolff, 2022. "Local Network Effects in the Adoption of a Digital Platform," Journal of Industrial Economics, Wiley Blackwell, vol. 70(3), pages 493-524, September.
    7. Cariolle, Joël, 2021. "International connectivity and the digital divide in Sub-Saharan Africa," Information Economics and Policy, Elsevier, vol. 55(C).
    8. Mukeshimana, Marie Claire & Zhao, Zhen-Yu & Nshimiyimana, Jean Pierre, 2021. "Evaluating strategies for renewable energy development in Rwanda: An integrated SWOT – ISM analysis," Renewable Energy, Elsevier, vol. 176(C), pages 402-414.
    9. Joël Cariolle & David A Carroll, 2022. "The Use of Digital for Public Service Provision in Sub-Saharan Africa," Working Papers hal-03004535, HAL.
    10. Gautam, Sanghmitra, 2023. "Quantifying welfare effects in the presence of externalities: An ex-ante evaluation of sanitation interventions," Journal of Development Economics, Elsevier, vol. 164(C).
    11. Shane Greenstein, 2020. "Digital Infrastructure," NBER Chapters, in: Economic Analysis and Infrastructure Investment, pages 409-447, National Bureau of Economic Research, Inc.
    12. Daniel Björkegren, 2022. "Competition in network industries: Evidence from the Rwandan mobile phone network," RAND Journal of Economics, RAND Corporation, vol. 53(1), pages 200-225, March.
    13. Yue Liu & Rong Luo, 2023. "Network Effects and Multinetwork Sellers’ Dynamic Pricing in the U.S. Smartphone Market," Management Science, INFORMS, vol. 69(6), pages 3297-3318, June.
    14. Joël Cariolle & Michele Imbruno & Jaime de Melo, 2020. "Bilateral digital connectivity and firm participation in export markets," Working Papers hal-03182438, HAL.
    15. Daniel Bjorkegren & Burak Ceyhun Karaca, 2020. "The Effect of Network Adoption Subsidies: Evidence from Digital Traces in Rwanda," Papers 2002.05791, arXiv.org.
    16. Xiaomeng Lu & Yali Lai & Yong Zhang, 2023. "Digital financial inclusion and investment diversification: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S2), pages 2781-2799, June.
    17. Oughton, Edward J. & Comini, Niccolò & Foster, Vivien & Hall, Jim W., 2022. "Policy choices can help keep 4G and 5G universal broadband affordable," Technological Forecasting and Social Change, Elsevier, vol. 176(C).
    18. Liangfei Qiu & Zhan (Michael) Shi & Andrew B. Whinston, 2018. "Learning from Your Friends’ Check-Ins: An Empirical Study of Location-Based Social Networks," Information Systems Research, INFORMS, vol. 29(4), pages 1044-1061, December.
    19. Theresa Kuchler & Johannes Stroebel, 2022. "Social Interactions, Resilience, and Access to Economic Opportunity: A Research Agenda for the Field of Computational Social Science," CESifo Working Paper Series 9606, CESifo.
    20. Francis Annan & Belinda Archibong, 2023. "The Value of Communication for Mental Health," NBER Working Papers 31638, National Bureau of Economic Research, Inc.
    21. Marcel Fafchamps & Måns Söderbom & Monique van den Boogart, 2022. "Adoption with Social Learning and Network Externalities," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(6), pages 1259-1282, December.
    22. Cirera,Xavier & Comin,Diego Adolfo & Vargas Da Cruz,Marcio Jose & Lee,Kyungmin, 2021. "Firm-Level Adoption of Technologies in Senegal," Policy Research Working Paper Series 9657, The World Bank.
    23. Mobarak, Ahmed & Levinsohn, James & Guiteras, Raymond, 2019. "Demand Estimation with Strategic Complementarities: Sanitation in Bangladesh," CEPR Discussion Papers 13498, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Network goods; Infrastructure; Information technology;
    All these keywords.

    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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