Speed 2.0: Evaluating Access to Universal Digital Highways

50 Pages Posted: 7 Sep 2014

See all articles by Gabriel M. Ahlfeldt

Gabriel M. Ahlfeldt

London School of Economics & Political Science (LSE) - Department of Geography and Environment

Pantelis Koutroumpis

Oxford Martin Programme of Technological and Economic Change; University of Oxford - Institute for New Economic Thinking at the Oxford Martin School; Imperial College Business School

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: September 5, 2014

Abstract

This paper shows that having access to a fast Internet connection is an important determinant of capitalization effects in property markets. We combine microdata on property prices in England between 1995 and 2010 with local availability of Internet broadband connections. Rich variation in Internet speed over space and time allows us to estimate the causal effect of broadband speed on property prices. We find a significantly positive effect, but diminishing returns to speed. Our results imply that an upgrade from narrowband to a high-speed first-generation broadband connection (offering Internet speed up to 8 Mbit/s) could increase the price of an average property by as much as 2.8%. A further increase to a faster connection (offering speeds up to 24 Mbit/s) leads to an incremental price effect of an additional 1%. We decompose this effect by income and urbanization, finding considerable heterogeneity. These estimates are used to evaluate proposed plans to deliver fast broadband universally. We find that increasing speed and connecting unserved households passes a cost-benefit test in urban and some suburban areas, while the case for universal delivery in rural areas is not as strong.

Keywords: Internet, property prices, capitalization, digital speed, universal access to broadband

JEL Classification: L1, H4, R2

Suggested Citation

Ahlfeldt, Gabriel M. and Koutroumpis, Pantelis and Valletti, Tommaso M., Speed 2.0: Evaluating Access to Universal Digital Highways (September 5, 2014). CEIS Working Paper No. 328, Available at SSRN: https://ssrn.com/abstract=2492234 or http://dx.doi.org/10.2139/ssrn.2492234

Gabriel M. Ahlfeldt

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/ahlfeldg/

Pantelis Koutroumpis

Oxford Martin Programme of Technological and Economic Change ( email )

University of Oxford
34 Broad Street
Oxford, OX1 3BD
United Kingdom
01865610388 (Phone)
OX1 3BD (Fax)

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Tommaso M. Valletti (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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