IDEAS home Printed from https://ideas.repec.org/p/fip/fedpwp/16-24.html
   My bibliography  Save this paper

Valuing \"Free\" Media in GDP: An Experimental Approach

Author

Listed:
  • Leonard I. Nakamura
  • Jon Samuels
  • Rachel Soloveichik

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 ntroduces 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 productionoriented 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.

Suggested Citation

  • Leonard I. Nakamura & Jon Samuels & Rachel Soloveichik, 2016. "Valuing \"Free\" Media in GDP: An Experimental Approach," Working Papers 16-24, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:16-24
    as

    Download full text from publisher

    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2016/wp16-24.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Greenstein, Shane & McDevitt, Ryan C., 2011. "The broadband bonus: Estimating broadband Internet's economic value," Telecommunications Policy, Elsevier, vol. 35(7), pages 617-632, August.
    2. repec:bla:revinw:v:26:y:1980:i:2:p:151-74 is not listed on IDEAS
    3. repec:bla:revinw:v:25:y:1979:i:4:p:349-63 is not listed on IDEAS
    4. Nadim Ahmad & Paul Schreyer, 2016. "Are GDP and Productivity Up to the Challenges of the Digital Economy?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 30, pages 4-27, Spring.
    5. Leonard I. Nakamura, 2014. "Hidden value: how consumer learning boosts output," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 9-14.
    6. Rachel Soloveichik, 2013. "Music Originals as Capital Assets," BEA Working Papers 0096, Bureau of Economic Analysis.
    7. John W. Kendrick, 1979. "Expanding Imputed Values In The National Income And Product Accounts," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(4), pages 349-363, December.
    8. John E. Cremeans, 1980. "Consumer Services Provided By Business Through Advertising‐Supported Media In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 26(2), pages 151-174, June.
    9. Robert Eisner, 1978. "Total Incomes In The United States, 1959 And 1969," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 24(1), pages 41-70, March.
    10. Nancy D. Ruggles & Richard Ruggles, 1970. "The Design of Economic Accounts," NBER Books, National Bureau of Economic Research, Inc, number rugg70-1.
    11. Benjamin A. Olken, 2009. "Do Television and Radio Destroy Social Capital? Evidence from Indonesian Villages," American Economic Journal: Applied Economics, American Economic Association, vol. 1(4), pages 1-33, October.
    12. David M. Byrne & Carol Corrado, 2015. "Prices for Communications Equipment: Rewriting the Record," Finance and Economics Discussion Series 2015-69, Board of Governors of the Federal Reserve System (U.S.).
    13. Rachel Soloveichik, 2013. "Miscellaneous Artwork as Capital Assets," BEA Working Papers 0098, Bureau of Economic Analysis.
    14. Yan Chen & Grace Jeon & Yong-Mi Kim, 2014. "A day without a search engine: an experimental study of online and offline searches," Experimental Economics, Springer;Economic Science Association, vol. 17(4), pages 512-536, December.
    15. Greenstein, Shane & McDevitt, Ryan, 2011. "Evidence of a modest price decline in US broadband services," Information Economics and Policy, Elsevier, vol. 23(2), pages 200-211, June.
    16. Aviv Nevo & John L. Turner & Jonathan W. Williams, 2016. "Usage‐Based Pricing and Demand for Residential Broadband," Econometrica, Econometric Society, vol. 84, pages 411-443, March.
    17. Rachel Soloveichik, 2013. "Long-Lived Television Programs as Capital Assets," BEA Working Papers 0097, Bureau of Economic Analysis.
    18. Nancy D. Ruggles & Richard Ruggles, 1970. "Introduction to "The Design of Economic Accounts"," NBER Chapters, in: The Design of Economic Accounts, pages 1-7, National Bureau of Economic Research, Inc.
    19. Rachel Soloveichik & David Wasshausen, 2013. "Copyright-Protected Assets in the National Accounts," BEA Working Papers 0102, Bureau of Economic Analysis.
    20. Joel Waldfogel, 2017. "The Random Long Tail and the Golden Age of Television," Innovation Policy and the Economy, University of Chicago Press, vol. 17(1), pages 1-25.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Leonard Nakamura & Jon Samuels & Rachel Soloveichik, 2017. "Measuring the “Free” Digital Economy within the GDP and Productivity Accounts," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2017-03, Economic Statistics Centre of Excellence (ESCoE).
    2. David Byrne & Carol Corrado, 2020. "Accounting for Innovations in Consumer Digital Services: IT Still Matters," NBER Chapters, in: Measuring and Accounting for Innovation in the Twenty-First Century, pages 471-517, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Leonard Nakamura & Jon Samuels & Rachel Soloveichik, 2017. "Measuring the Free Digital Economy within the GDP and Productivity Accounts," BEA Working Papers 0146, Bureau of Economic Analysis.
    2. Leonard I. Nakamura & Rachel Soloveichik, 2015. "Valuing “free” media across countries in GDP," Working Papers 15-25, Federal Reserve Bank of Philadelphia.
    3. Jiri Skolka, 1985. "Wende in der Arbeitsteilung," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 11(4), pages 445-469.
    4. J. Steven Landefeld & Barbara M. Fraumeni & Cindy M. Vojtech, 2005. "Accounting for Nonmarket Production: A Prototype Satellite Account Using the American Time Use Survey," BEA Papers 0056, Bureau of Economic Analysis.
    5. Boik, Andre, 2017. "The economics of universal service: An analysis of entry subsidies for high speed broadband," Information Economics and Policy, Elsevier, vol. 40(C), pages 13-20.
    6. Gabriel Ahlfeldt & Pantelis Koutroumpis & Tommaso Valletti, 2017. "Speed 2.0: Evaluating Access to Universal Digital Highways," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 586-625.
    7. Calzada, Joan & Martínez-Santos, Fernando, 2014. "Broadband prices in the European Union: Competition and commercial strategies," Information Economics and Policy, Elsevier, vol. 27(C), pages 24-38.
    8. Kim, Wook Joon, 2014. "Estimating quality-adjusted prices for residential fixed broadband in South Korea 2000 - 2009," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106886, International Telecommunications Society (ITS).
    9. Charles R. Hulten & Leonard I. Nakamura, 2017. "Accounting for Growth in the Age of the Internet The Importance of Output-Saving Technical Change," Working Papers 17-24, Federal Reserve Bank of Philadelphia.
    10. Ian Goldin & Pantelis Koutroumpis & François Lafond & Julian Winkler, 2024. "Why Is Productivity Slowing Down?," Journal of Economic Literature, American Economic Association, vol. 62(1), pages 196-268, March.
    11. Kim, Yongwon & Kim, Yongkyu, 2020. "The Value of Wi-Fi as Entertainment: An Application to Free Wi-Fi in City Buses of Korea," ITS Conference, Online Event 2020 224863, International Telecommunications Society (ITS).
    12. Charles Hulten & Leonard I. Nakamura, 2020. "Expanded GDP for Welfare Measurement in the 21st Century," NBER Chapters, in: Measuring and Accounting for Innovation in the Twenty-First Century, pages 19-59, National Bureau of Economic Research, Inc.
    13. Samara Mendez & Gabor Molnar & Scott J. Savage, 2021. "The Impacts of the Lifeline Subsidy on High-Speed Internet Access," Journal of Law and Economics, University of Chicago Press, vol. 64(4), pages 745-782.
    14. Trinh Le & John Gibson & Les Oxley, 2003. "Cost‐ and Income‐based Measures of Human Capital," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 271-307, July.
    15. Martin Beznoska & Viktor Steiner, 2012. "Does Consumption Decline at Retirement?: Evidence from Repeated Cross-Section Data for Germany," Discussion Papers of DIW Berlin 1220, DIW Berlin, German Institute for Economic Research.
    16. Warren, Paul, 2005. "Key Indicators in Canada," Economic Analysis (EA) Research Paper Series 2005037e, Statistics Canada, Analytical Studies Branch.
    17. Diewert, Erwin, 2007. "Measuring Productivity in the System of National Accounts," Economics working papers diewert-07-11-16-12-39-23, Vancouver School of Economics, revised 16 Nov 2007.
    18. Joan Calzada & Fernando Martínez-Santos, 2016. "Pricing strategies and competition in the mobile broadband market," Journal of Regulatory Economics, Springer, vol. 50(1), pages 70-98, August.
    19. Ros, Agustin J., 2023. "Determinants of fixed and mobile broadband demand in Mexico using discrete choice exercises and logit and conditional logit models," Information Economics and Policy, Elsevier, vol. 64(C).
    20. Godin, Benoit, 2007. "Science, accounting and statistics: The input-output framework," Research Policy, Elsevier, vol. 36(9), pages 1388-1403, November.

    More about this item

    Keywords

    Internet; Productivity; Advertising; Measurement; GDP;
    All these keywords.

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:16-24. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Beth Paul (email available below). General contact details of provider: https://edirc.repec.org/data/frbphus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.