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Estimating the Welfare Effects of Digital Infrastructure

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  • Shane M. Greenstein
  • Pablo T. Spiller

Abstract

While much economic policy presumes that more information infrastructure yields higher economic returns, little empirical work measures the magnitudes of these returns. We examine investment by local exchange telephone companies in fiber optic cable, ISDN lines and signal seven software, infrastructure which plays an essential role in bringing digital technology to local telephone networks. We estimate the elasticity of the derived demand for infrastructure investment faced by local exchange companies, controlling for factors such as local economic activity and the political disposition of state regulators. Our model postulates a regulated profit maximizing local exchange firm and a regulatory agency with predetermined political leanings in favor of consumer prices or firm profits. The model accounts for variation in state regulation and local economic conditions. In all our estimates we find that consumer demand is sensitive to investment in modern infrastructure, particularly as represented by fiber optic cable. Our estimates imply that infrastructure investment is responsible for a substantial fraction of the recent growth in consumer surplus and business revenue in local telecommunication services.

Suggested Citation

  • Shane M. Greenstein & Pablo T. Spiller, 1996. "Estimating the Welfare Effects of Digital Infrastructure," NBER Working Papers 5770, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5770
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    Cited by:

    1. Lars-Hendrik Roller & Leonard Waverman, 2001. "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach," American Economic Review, American Economic Association, vol. 91(4), pages 909-923, September.
    2. Sawng, Yeong-wha & Kim, Pang-ryong & Park, JiYoung, 2021. "ICT investment and GDP growth: Causality analysis for the case of Korea," Telecommunications Policy, Elsevier, vol. 45(7).
    3. Ekaterina Prytkova, 2021. "ICT's Wide Web: a System-Level Analysis of ICT's Industrial Diffusion with Algorithmic Links," Jena Economics Research Papers 2021-005, Friedrich-Schiller-University Jena.
    4. Shane M. Greenstein & Mercedes M. Lizardo & Pablo T. Spiller, 1997. "The Evolution of Advanced Large Scale Information Infrastructure in the United States," NBER Working Papers 5929, National Bureau of Economic Research, Inc.
    5. Anselm Mattes & Philipp Meinen & Ferdinand Pavel, 2012. "Goods Follow Bytes: The Impact of ICT on EU Trade," Discussion Papers of DIW Berlin 1182, DIW Berlin, German Institute for Economic Research.
    6. Ward, Michael R. & Zheng, Shilin, 2016. "Mobile telecommunications service and economic growth: Evidence from China," Telecommunications Policy, Elsevier, vol. 40(2), pages 89-101.
    7. Madden, Gary G & Coble-Neal, Grant, 2002. "Internet economics and policy: An Australian perspective," MPRA Paper 10686, University Library of Munich, Germany.
    8. Gunnar Eliasson, 2011. "Advanced purchasing, spillovers and innovative discovery," Journal of Evolutionary Economics, Springer, vol. 21(1), pages 121-139, February.
    9. Ward, Michael R. & Zheng, Shilin, 2014. "Mobile telecommunications infrastructure and economic growth: Evidence from China," 25th European Regional ITS Conference, Brussels 2014 101405, International Telecommunications Society (ITS).
    10. Pavel Pykhov & Tatiana Kashina, 2015. "Infrastructure Security of the Ural Regions: Assessment Technique and Diagnostic Results," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(3), pages 66-77.
    11. Ed Saiedi & Anders Broström & Felipe Ruiz, 2021. "Global drivers of cryptocurrency infrastructure adoption," Small Business Economics, Springer, vol. 57(1), pages 353-406, June.
    12. Correa, Lisa, 2006. "The economic impact of telecommunications diffusion on UK productivity growth," Information Economics and Policy, Elsevier, vol. 18(4), pages 385-404, November.
    13. Hazlett, Thomas W. & Muñoz, Roberto E., 2009. "Spectrum allocation in Latin America: An economic analysis," Information Economics and Policy, Elsevier, vol. 21(4), pages 261-278, November.
    14. Pykhov, P. A. & Kashina, T. O., 2015. "Infrastructure coverage of the ural federal district regions: assessment metodology and diagnostic results," R-Economy, Ural Federal University, Graduate School of Economics and Management, vol. 1(3), pages 408-416.
    15. Alice Shiu & Pun-Lee Lam, 2008. "Causal Relationship between Telecommunications and Economic Growth in China and its Regions," Regional Studies, Taylor & Francis Journals, vol. 42(5), pages 705-718.
    16. Karen Eggleston & Robert Jensen & Richard Zeckhauser, 2002. "Information and Communication Technologies, Markets and Economic Development," Discussion Papers Series, Department of Economics, Tufts University 0203, Department of Economics, Tufts University.
    17. Winifred Huang & Michele Meoli & Silvio Vismara, 2020. "The geography of initial coin offerings," Small Business Economics, Springer, vol. 55(1), pages 77-102, June.
    18. Peter Q. Blair & Mischa Fisher, 2022. "Does Occupational Licensing Reduce Value Creation on Digital Platforms?," NBER Working Papers 30388, National Bureau of Economic Research, Inc.

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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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