Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet

Networks, the Internet, and Cloud Computing and Internet

Article Snapshot

Author(s)

Austan Goolsbee and Peter Klenow

Source

American Economic Review, Vol. 96:2, pp. 108-113, 2006

Summary

This paper estimates how much consumers value Internet access by considering how much time they spend using it.

Policy Relevance

Policy studies that do not consider the time cost of the Internet will underestimate the value of Internet access to consumers.

Main Points

  • In addition to the cost of computing equipment and an Internet service provider subscription, using the Internet costs consumers time.
     
  • Economists have techniques for estimating how much consumers value their time, and so the authors are able to estimate the full cost of the Internet to the average user.
     
  • The authors are also able to estimate how much consumers would be willing to pay for Internet access.
     
  • The difference between how much a consumer would be willing to pay for the Internet, and how much he or she must actually pay, is the consumer's surplus from Internet access.
     
  • A typical consumer enjoys a surplus of $3000 from Internet access.
     
  • Conventional estimates that fail to take into account the time cost of the Internet would show a surplus of less than $100.
     

 

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