Estimating the Welfare Effects of Digital Infrastructure / Shane M. Greenstein, Pablo T. Spiller.

Format:

Book

Author/Creator:

Greenstein, Shane M.

Contributor:

National Bureau of Economic Research.

Spiller, Pablo T.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5770.

NBER working paper series no. w5770

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

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.

Notes:

Print version record

September 1996.