Abstract

http://ssrn.com/abstract=881229
 
 

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Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet


Austan Goolsbee


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Peter J. Klenow


Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

February 2006

NBER Working Paper No. w11995

Abstract:     
For some goods, the main cost of buying the product is not the price but rather the time it takes touse them. Only about 0.2% of consumer spending in the U.S., for example, went for Internet accessin 2004 yet time use data indicates that people spend around 10% of their entire leisure time goingonline. 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.

Number of Pages in PDF File: 14

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Date posted: April 22, 2006  

Suggested Citation

Goolsbee, Austan and Klenow, Peter J., Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet (February 2006). NBER Working Paper No. w11995. Available at SSRN: http://ssrn.com/abstract=881229

Contact Information

Austan Goolsbee (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-5869 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Peter J. Klenow
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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