A New Well-being Metric in the Era of the Digital Economy

This project will advance economic measurement of well-being in the era of the digital economy. To assess changes in living standards, and by extension the effects of policies that might affect living standards, it is necessary to properly measure the welfare gains from all goods and services. Many traditional goods and services are now being replaced by digital goods.

In addition, new applications of digital technologies are transforming the production process, allowing the nature, variety, and quality of traditional goods to be frequently changed. However, the welfare effects of these changes are difficult or even impossible to appropriately capture in existing official statistics. This project will develop a new well-being metric for the digital era based on changes in consumer surplus.

The research will overcome several weaknesses in existing official statistics by focusing directly on consumer surplus, rather than production. The approach also will consider a much broader set of goods and services, including those with zero-price. The research may serve as a template for Federal statistical agencies to generate more reliable official statistics.

Statistical indicators are important not only in assessing and affecting the functioning of the economic market, but also in designing and evaluating policies aimed at the development of society. The results of this research will enable policymakers, economists, statisticians, and technologists to better understand the main sources of welfare gains in the economy, including digital goods and technologies.

To overcome the problems of existing well-being metrics to capture the value of goods in the digital economy, this project will measure changes in consumer surplus as a general measure of well-being. The investigators will elicit the consumers' willingness to accept (WTA) valuations in exchange for losing access to various goods using massive choice online experiments.

For instance, each consumer will be asked to answer whether she would be willing to refrain from having access to Facebook for a month in exchange for a monetary payoff. The amount of money offered will vary across consumers, making it possible to estimate the demand curve and total consumer surplus. Each WTA question will be accompanied by a Bayesian-Truth-Serum (BTS) question, which asks a consumer to predict what percentage of consumers would have made the same choice.

This BTS question helps make the survey incentive compatible because it is optimal to respond truthfully to each WTA question. With this approach, the investigators will estimate the consumer surplus from each of approximately 143 categories of goods and services including 17 categories of free digital goods. By aggregating the consumer surplus from all categories and assessing changes over time, they will provide a new well-being metric called Gross Domestic Product-B (GDP-B).

While not intended to replace traditional national accounts, GDP-B and statistics based on it will provide a better picture of well-being in the digital economy.

This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.