Expanded GDP for Welfare Measurement in the 21st Century

49 Pages Posted: 24 Dec 2019

See all articles by Charles R. Hulten

Charles R. Hulten

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Leonard I. Nakamura

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Date Written: December 2019

Abstract

The information revolution currently underway has changed the economy in ways that are hard to measure using conventional GDP procedures. The information available to consumers has increased dramatically as a result of the Internet and its applications, and new mobile communication devices have greatly increased the speed and reach of its accessibility. An individual now has an unprecedented amount of information on which to base consumption choices, and the “free” nature of the information provided means that the resulting benefits largely bypass GDP and accrue directly to consumers. This disconnect introduces a wedge between the growth in real GDP and the growth in consumer well-being, with the result that a slower rate of growth of the former does not necessarily imply a slower rate of the latter. The conceptual framework for this analysis is developed in a previous paper (Hulten and Nakamura (2017), which extended the conventional framework of GDP to include a separate technology for consumer decisions based on Lancaster (1966b), and developed the idea of Expanded GDP (or EGDP). In this paper, we use this framework to provide a detailed critique of existing GDP and price measurement procedures and summarize the existing evidence on the size of the wedge between GDP and EGDP.

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Suggested Citation

Hulten, Charles R. and Nakamura, Leonard I., Expanded GDP for Welfare Measurement in the 21st Century (December 2019). NBER Working Paper No. w26578. Available at SSRN: https://ssrn.com/abstract=3508557

Charles R. Hulten (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Leonard I. Nakamura

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)

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