Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet / Austan Goolsbee, Peter J. Klenow.

Format:

Book

Author/Creator:

Goolsbee, Austan.

Contributor:

National Bureau of Economic Research.

Klenow, Peter J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11995.

NBER working paper series no. w11995

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Valuing Consumer Products by the Time Spent Using Them

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

For some goods, the main cost of buying the product is not the price but rather the time it takes to

use them. Only about 0.2% of consumer spending in the U.S., for example, went for Internet access

in 2004 yet time use data indicates that people spend around 10% of their entire leisure time going

online. For such goods, estimating price elasticities with expenditure data can be difficult, and, therefore, estimated welfare gains highly uncertain. We show that for time-intensive goods like the Internet, a simple model in which both expenditure and time contribute to consumption can be used to estimate the consumer gains from a good using just the data on time use and the opportunity cost of people's time (i.e., the wage). The theory predicts that higher wage internet subscribers should spend less time online (for non-work reasons) and the degree to which that is true identifies the elasticity of demand. Based on expenditure and time use data and our elasticity estimate, we calculate that consumer surplus from the Internet may be around 2% of full-income, or several thousand dollars per user. This is an order of magnitude larger than what one obtains from a back-of-the-envelope calculation using data from expenditures.

Notes:

Print version record

February 2006.