Economic Welfare in the Digital Economy

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Economic Welfare in the Digital Economy

Summary

The project explores different practical and conceptual approaches to measuring economic welfare in the digital economy, in response to a growing need for broader measures of welfare beyond what GDP offers. We ran three large representative surveys of the UK population, using a stated preference approach to elicit values for various digital and non-digital goods. We were able to breakdown the results by socio-demographic characteristics and geography and look at changes over time. We also considered the role of time in understanding production, consumption, productivity and welfare.

Overview

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.

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.

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. We considered the variables and data needed to estimate the consumer welfare production function and developed a conceptual framework for thinking about time and productivity.

Methods

We ran three surveys between February 2020 and February 2021 to explore approaches to measuring economic welfare in the digital economy. Previous research (primarily in the US) used massive online experiments, but could not guarantee representativeness as the sampling method was not random. We complement these findings by conducting large representative surveys of the UK with YouGov, such that the data can be broken down by socio-demographic characteristics and geography.

The survey uses a stated preference method in an online choice experiment. This involves asking participants to report their willingness to accept compensation for the loss of digital goods such as social media. We also asked about non-digital free goods (such as public parks).

We first ran the survey in February 2020, with 10,000 responses. In the wake of the COVID-19 pandemic, we re-ran the survey during the lockdown period, in May 2020, with 1,500 respondents. We ran thelarger survey again in February 2021 to compare changes over time.

We also considered conceptual issues relating to digital and welfare, namely the time taken to produce and consume. We developed a framework to think about the impact of digital on different types of economic activities.

Findings

Through the repeated surveys we developed a better understanding of the usage and valuation of a range of digital and non-digital goods, before and during the pandemic. Average valuations of free digital goods were strongly correlated to usage (i.e. the greater the share of people that use a free digital good, the more they value it on average). The highest valued products were online search and email, with mean annual values of over £3,000 for each.

Valuations changed markedly between the surveys in February and May 2020, with May being during the national lockdown in response to the coronavirus pandemic. Average valuations of online learning, gaming and shopping saw large increases in this short period of time, consistent with their increased usage. Valuations for Google maps, and physical substitutes (such as cinemas and newspapers) fell.

We also found considerable variation across the population. Londoners valued public parks much higher than the rest of the country, and younger people valued online news much higher than older people.

Impact

The work complements previous work (largely in the US) by ensuring representativeness in the sampling, enabling breakdowns of the valuations by socio-demography characteristics and geography. This offers a cross-check on results from surveys that are not representative and improves understanding of this important method for future researchers.

Policymakers and analysts in the UK and internationally have made use of the results in better understanding the digital economy, including the relative importance of different aspects in the UK context. We have presented this work at a range of conferences and continue to share our experiences with researchers around the world.

Outputs

Coyle, D. and Diepeveen, S. “Creating and Governing Value from Data” ASSA 2022 Virtual Annual Meeting, 7-9 January 2022

Coyle, D. How Better Statistics Lead to Better Policy in a Changing World, Progressive Policy Institute, Panel Session, 3 December 2021

Coyle, D. and Nakamura, L. “Time use and household-centric measurement of welfare in the digital economy” Workshop on Productivity and Well-being: Measurement and Linkages, Session 3: New Approaches and Metrics in Measuring Productivity and Well-being Linkages, Centre for the Study of Living Standards and The Productivity Institute, 16-17 November 2021

Coyle, D. “What don’t we know about measuring the Digital Economy”  All in Good Measure: Exploring New and Better Ways to Measure the Digital Economy, Stanford Digital Economy Lab Annual Workshop, 8 November 2021

Nakamura, L. and Coyle, D. “Time Use and Household-Centric Measurement of Welfare in the Digital Economy” 36th Annual Virtual General Conference, IARIW, Session 3: Time Use, Welfare and GDP I 23-27 August 2021

Coyle, D. ‘Free goods and economic welfare’ Toulouse School of Economics Digital Economy Seminar Series, June 2021

Coyle, D. “The Data Economy: more questions than answers“Federal Reserve Banks of Atlanta, Dallas and Richmond, Technology-Enabled Disruption: Implications for Business, Labor Markets and Monetary Policy, 21 May 2021

Coyle, D. ‘ Why digital is so disruptive’ RES Annual Public Lecture 2021, 6 May 2021

Nguyen, D. and Coyle, D. “Free goods and economic welfare”  14th Digital Economics Conference, Parallel Session 2: Media and Social Media Toulouse School of Economics, 7-8 January 2021 (online)

Coyle, D., Nguyen, D. (2020) “Free goods and economic welfare” ESCoE Discussion Paper Series, ESCoE DP 2020-18

Coyle, D., Nguyen, D.”The value of free digital goods” ESCoE Blog, 15 December 2020

Coyle, D. and Nguyen, D. “Free goods and economic welfare” ESCoE COVID-19 Webinar, 26 November 2020

Nguyen, D. ‘Free goods and economic welfare’ OECD Joint Meeting of the Working Party on Financial Statistics and the Working Party on National Accounts, Item 5. Digitalisation, 5th Nov 2020

Coyle, D. and Nguyen, D. ‘‘Free’ Digital Goods and Economic Welfare’ ESCoE Conference on Economic Measurement 2020, Contributed Session D: Welfare, 16-18 September 2020

Coyle, D., Nguyen, D. (2020) “Valuing goods online and offline: the impact of Covid-19ESCoE Discussion Paper Series, ESCoE DP 2020-10

Valuing digital services” Diane Coyle and David Nguyen interviewed by Tim Phillips, 24 July 2020

Kopf, D. ‘These are the products people value more in a pandemic“, Quartz 17 July 2020

Coyle, D., Nguyen, D. “The impact of COVID-19 on the value of online goods” VoX EU, 10 July 2020

Coyle, D., Nguyen, D. “Valuing goods online and offline: the impact of Covid-19“. Economics Vetted and Real-Time Papers Issue 33, CEPR Press, 30 June 2020

Nguyen “Why is measuring the digital economy so difficult when everything is stored as data?” ESCoE Seminar Series, 14 January 2020

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