Speed 2.0 - Evaluating Access to Universal Digital Highways

49 Pages Posted: 5 Feb 2015

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: January 31, 2015

Abstract

This paper shows that having access to a fast Internet connection is an important determinant of capitalization effects in property markets. Our empirical strategy combines a boundary discontinuity design with controls for time-invariant effects and arbitrary macro-economic shocks at a very local level to identify the causal effect of broadband speed on property prices from variation that is plausibly exogenous. Applying this strategy to a micro data set from England between 1995 and 2010 we find a significantly positive effect, but diminishing returns to speed. Our results imply that disconnecting an average property from a high-speed first-generation broadband connection (offering Internet speed up to 8 Mbit/s) would depreciate its value by 2.8%. In contrast, upgrading such a property to a faster connection (offering speeds up to 24 Mbit/s) would increase its value by no more than 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: L100, H400, R200

Suggested Citation

Ahlfeldt, Gabriel M. and Koutroumpis, Pantelis and Valletti, Tommaso M., Speed 2.0 - Evaluating Access to Universal Digital Highways (January 31, 2015). CESifo Working Paper Series No. 5186, Available at SSRN: https://ssrn.com/abstract=2560715

Gabriel M. Ahlfeldt (Contact Author)

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

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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