Free goods and economic welfare (ESCoE DP 2020-18)


Free goods and economic welfare (ESCoE DP 2020-18)


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This paper uses surveys representative of the UK online population to assess the welfare value of online and offline goods with a zero price. Through pilot studies and two surveys conducted before and during the Covid19 lockdown, we ascertain consumers’ willingness to accept the loss of a range of ‘free’ online and offline goods, as well as some substitutes with a positive market price. The average value assigned to free goods was generally high, particularly when benchmarked against revenue figures for the services. The ratio of stated valuations to average revenues is higher for free than for non-zero price goods. We also present demand curves and explore the distributional effect of free goods as between different demographic groups. The surveys suggest that absolute valuations are not tightly anchored, but indicate clear rankings among goods. The natural experiment of the Covid19 lockdown brought about changes in valuations that were significant for some goods and have plausible sign and scale. We also discuss the limitations of the contingent valuation approach to estimate the aggregate effect of such goods on economic welfare, in particular questions of distribution, the meaning of the gap between willingness to accept and willingness to pay, and the absence of an adding up constraint for aggregate measurement.

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