Measuring the Welfare Gain from Personal Computers

Abstract

The welfare gain to consumers from the introduction of personal computers is estimated here. A simple model of consumer demand is formulated that uses a slightly modified version of standard preferences. The modification permits marginal utility, and hence total utility, to be finite when the consumption of computers is zero. This implies that the good won't be consumed at a high enough price. It also bounds the consumer surplus derived from the product. The model is calibrated/estimated using standard national income and product account data. The welfare gain from the introduction of personal computers is in the range of 2 to 3 percent of consumption expenditure.

Keywords: Compensating Variation, Computers, Electricity, Equivalent Variation, Fisher Ideal Price Index, New Goods, Technological Progress, Tornqvist Price Index, Welfare Gain

JEL Classification: E01, E21, O33