Valuing 'Free' Media in GDP: An Experimental Approach

73 Pages Posted: 2 Sep 2016

See all articles by Leonard I. Nakamura

Leonard I. Nakamura

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Jon Samuels

Government of the United States of America - Bureau of Economic Analysis (BEA)

Rachel H. Soloveichik

Government of the United States of America - Bureau of Economic Analysis (BEA)

Date Written: 2016-08-05

Abstract

“Free” consumer entertainment and information from the Internet, largely supported by advertising revenues, has had a major impact on consumer behavior. Some economists believe that measured gross domestic product (GDP) growth is badly underestimated because GDP excludes online entertainment (Brynjolfsson and Oh 2012; Ito 2013; Aeppel 2015). This paper introduces an experimental GDP methodology that includes advertising-supported media in both final output and business inputs. For example, Google Maps would be counted as final output when it is used by a consumer to plan vacation driving routes. On the other hand, the same website would be counted as a business input when it is used by a pizza restaurant to plan delivery routes. Contrary to critics of the U.S. Bureau of Economic Analysis (BEA), the process of including “free” media in the input-output accounts has little impact on either GDP or total factor productivity (TFP). Between 1998 and 2012, measured nominal GDP growth falls 0.005% per year, real GDP growth rises 0.009% per year and TFP growth rises 0.016% per year. Between 1929 and 1998, measured nominal GDP growth rises 0.002% per year, real GDP growth falls 0.002% per year, and TFP growth rises 0.004% per year. These changes are not nearly enough to reverse the recent slowdown in growth. Our method for accounting for free media is production oriented in the sense that it is a measure of the resource input into the entertainment (or other content) of the medium rather than a measure of the consumer surplus arising from the content. The BEA uses a similar production-oriented approach when measuring GDP. In contrast, other researchers use broader approaches to measure value. Brynjolfsson and Oh (2012) attempt to capture some consumer surplus by measuring the time expended on the Internet. Varian (2009) argues that much of the value of the Internet is in time saving, an additional metric for capturing consumer surplus. The McKinsey Institute (Bughin et al. 2011) attempts to measure the productivity gain from search directly. In particular, this production-oriented accounting has no method to account for instances in which the good or service precedes the revenue that it eventually generates. Over the past two decades, many Silicon Valley firms have followed the disruptive business model described as URL: ubiquity now, revenue later. Some firms have been creating proprietary software or research, which is already captured in the national accounts as investment. Other firms have been creating intangible investments in open source software, customer networks and other organizational capital. Despite their long-run value, none of these intangible assets are currently captured in the national accounts as investment. If we treat these asset categories as capital, then the productivity boom from 1995 to 2000 becomes even stronger and the weak productivity growth of the past decade may be ameliorated somewhat.

Keywords: Internet, Productivity, Advertising, Measurement, GDP

JEL Classification: C82, L81, M37, O3

Suggested Citation

Nakamura, Leonard I. and Samuels, Jon and Soloveichik, Rachel H., Valuing 'Free' Media in GDP: An Experimental Approach (2016-08-05). FRB of Philadelphia Working Paper No. 16-24. Available at SSRN: https://ssrn.com/abstract=2833772

Leonard I. Nakamura (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3804 (Phone)
215-574-4364 (Fax)

Jon Samuels

Government of the United States of America - Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

Rachel H. Soloveichik

Government of the United States of America - Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
79
rank
298,893
Abstract Views
586
PlumX Metrics