Economic Welfare in the Digital Economy

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Economic Welfare in the Digital Economy

Topic:

Welfare

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Summary

Recent years have seen a growing debate about the adequacy of Gross Domestic Product (GDP) as an indicator of economic performance, and a new generation increasingly concerned with social well-being and climate change are coming to see GDP as an outmoded tool. The search for non-GDP based indicators of economic welfare is gathering pace and continues to gain impetus from the significant structural changes happening in the digital economy, as well as longstanding welfare critiques of GDP by researchers and policymakers.

Overview

The project explores different approaches to measuring economic welfare in the digital economy. The first method involves the direct measurement of economic welfare from digital goods using contingent valuation methods developed in an online choice experiment. Contingent valuation asks participants to report their willingness to accept compensation for the loss of digital goods such as social media. The project extends existing evidence by understanding how welfare values change when the sample allows for socio-demographic and regional variation. In the wake of the Covid-19 pandemic, we re-ran the survey during the lockdown period. Results from the second survey wave provide invaluable insight to the welfare benefit of digital goods in the absence of goods and services that were no longer available due to lockdown restrictions.

The research also explores the notion of a ‘consumption technology’, where digital innovation leads to an improvement in consumption because consumers get more utility for money spent. GDP understates improvements in consumer welfare due to digital innovation, because it does not account for the added utility. The project aims to identify the variables and data needed to estimate the consumer welfare production function and undertake pilot estimation.

How people choose to spend their time plays an important role in determining productivity and welfare in the economy. Digital technology is leading to substantial changes in how people allocate their time across market and home production and consumption, including activities not previously recorded in time use data. The welfare implications are not straightforward as the benefits of digital technologies are difficult to measure in terms of productivity gain, time savings and quality improvements. We combine new ONS time-use data with direct survey evidence of willingness to pay for leisure time to illuminate these issues.

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