GDP-B: Accounting for the Value of New and Free Goods

Abstract

The welfare contributions of new and free goods are not well-measured in our current national accounts. We derive explicit terms for the contributions of these goods and introduce a new framework and metric, GDP-B which quantifies their benefits. We apply this framework to several empirical examples including Facebook and smartphone cameras and estimate their valuations through incentive-compatible choice experiments. We find that including the gains from Facebook adds 0.05 to 0.11 percentage points to welfare growth per year while improvements in smartphones adds approximately 0.63 percentage points per year.

Keywords: Welfare measurement, GDP, Productivity, mismeasurement, productivity slowdown, new goods, free goods, online choice experiments, GDP-B

JEL Classification: C43, D60, E23, O3, O4