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Accounting for Innovation in Consumer Digital Services: IT Still Matters

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  • David Byrne
  • Carol Corrado

Abstract

This paper develops a framework for measuring digital services in the face of ongoing innovations in the delivery of content to consumers. We capture what Brynjolfsson and Saunders (2009) call “free goods” as the capital services generated by connected consumers' stocks of IT digital goods, a service flow that augments the existing measure of personal consumption in GDP. Its value is determined by the intensity with which households use their IT capital to consume content delivered over networks, and its volume depends on the quality of the IT capital. Consumers pay for delivery services, however, and the complementarity between device use and network use enables us to develop a quality-adjusted price measure for the access services already included in GDP. Our new estimates imply that accounting for innovations in consumer content delivery matters: The innovations boost consumer surplus by nearly $2,000 (2017 dollars) per connected user per year for the full period of this study (1987 to 2017) and contribute .6 percentage point per year to US real GDP growth during the last ten. All told, our more complete accounting of innovations is (conservatively) estimated to have moderated the post-2007 GDP growth slowdown by .3 percentage points per year.

Suggested Citation

  • David Byrne & Carol Corrado, 2019. "Accounting for Innovation in Consumer Digital Services: IT Still Matters," NBER Working Papers 26010, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26010
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    References listed on IDEAS

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    1. Brynjolfsson, Erik, 2013. "Wired for Innovation: How Information Technology Is Reshaping the Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262518611, February.
    2. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    3. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
    4. Brynjolfsson, Erik & Collis, Avinash & Diewert, W. Erwin & Eggers, Felix & Fox, Kevin J., 2019. "GDP-B: Accounting for the Value of New and Free Goods in the Digital Economy," OSF Preprints sptfu, Center for Open Science.
    5. Hulten, Charles R., 1986. "Productivity change, capacity utilization, and the sources of efficiency growth," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 31-50.
    6. Rachel Soloveichik & Leonard I. Nakamura & Jon Samuels, 2016. "Valuing \\"Free\\" Media in GDP: An Experimental Approach," Working Papers 16-24, Federal Reserve Bank of Philadelphia, revised 05 Aug 2016.
    7. Jeremy Greenwood & Karen A. Kopecky, 2013. "Measuring The Welfare Gain From Personal Computers," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 336-347, January.
    8. Erik Brynjolfsson & Felix Eggers & Avinash Gannamaneni, 2018. "Using Massive Online Choice Experiments to Measure Changes in Well-being," NBER Working Papers 24514, National Bureau of Economic Research, Inc.
    9. Adam Copeland, 2013. "Seasonality, consumer heterogeneity and price indexes: the case of prepackaged software," Journal of Productivity Analysis, Springer, vol. 39(1), pages 47-59, February.
    10. Leonard Nakamura & Jon Samuels & Rachel Soloveichik, 2016. "Valuing Free Media in GDP: An Experimental Approach," BEA Working Papers 0133, Bureau of Economic Analysis.
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    12. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
    13. David M. Byrne & Daniel E. Sichel & Ana M. Aizcorbe, 2019. "Getting Smart About Phones : New Price Indexes and the Allocation of Spending Between Devices and Services Plans in Personal Consumption Expenditures," Finance and Economics Discussion Series 2019-012, Board of Governors of the Federal Reserve System (U.S.).
    14. Carol Corrado & Olga Ukhaneva, 2016. "Hedonic Prices for Fixed Broadband Services: Estimation across OECD Countries," OECD Science, Technology and Industry Working Papers 2016/7, OECD Publishing.
    15. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, March.
    16. Rachel Soloveichik & Jon Samuels & Leonard I. Nakamura, 2018. "“Free” Internet Content: Web 1.0, Web 2.0, and the Sources of Economic Growth," Working Papers 18-17, Federal Reserve Bank of Philadelphia, revised 24 May 2018.
    17. Mo Abdirahman & Diane Coyle & Richard Heys & Will Stewart, 2017. "A Comparison of Approaches to Deflating Telecoms Services Output," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2017-04, Economic Statistics Centre of Excellence (ESCoE).
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    Cited by:

    1. David Byrne & Carol Corrado & Daniel Sichel, 2017. "The Rise of Cloud Computing: Minding your Ps, Qs and Ks," NBER Chapters, in: Measuring and Accounting for Innovation in the 21st Century, National Bureau of Economic Research, Inc.
    2. Nicholas Crafts, 2017. "Is Slow Economic Growth the ‘New Normal’ for Europe?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 45(3), pages 283-297, September.

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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