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New Measures of the Economy

Paper Session

Friday, Jan. 5, 2018 2:30 PM - 4:30 PM

Marriott Philadelphia Downtown, Grand Ballroom Salon E
Hosted By: American Economic Association
  • Chair: Betsey Stevenson, University of Michigan

Estimating Changes in Well-being Using Massive Online Choice Experiments

Erik Brynjolfsson
,
Massachusetts Institute of Technology
Felix Eggers
,
University of Groningen
Avinash Gannamaneni
,
Massachusetts Institute of Technology

Abstract

In principle, changes in consumer surplus (compensating expenditure) provide a superior measure of changes in consumer well-being than GDP and metrics derived from it, like productivity, especially for digital goods. In practice, consumer surplus has been difficult to measure. We demonstrate the potential of massively scalable online Single Binary Discrete Choice experiments for addressing this issue. These experiments provide a measure of consumers’ willingness to accept compensation for losing access to various digital goods and thereby estimate the changes in consumer surplus from these goods. Drawing on several hundred thousand online experiments, our results indicate that digital goods have created substantial gains in well-being which are largely missed by conventional measure of GDP and productivity, and suggest that our approach can be scaled up to a broader set of goods and services. Two limitations of our methods are that they are much less precise than changes in GDP and they suffer from hypothetical bias. We show how much of an improvement in precision can be achieved with larger sample sizes and demographic controls and we document the direction and magnitude of hypothetical bias by conducting incentive compatible experiments with a smaller group of subjects. By periodically querying a large, representative sample of goods and services, including those which are not priced in existing markets, changes in consumer surplus and other new measures of well-being derived from these online choice experiments have the potential for providing cost-effective supplements to existing national income and product accounts.

The Empirics of Social Progress: The Interplay between Subjective Well-Being and Societal Performance

Daniel Fehder
,
Massachusetts Institute of Technology
Scott Stern
,
Massachusetts Institute of Technology
Michael E. Porter
,
Harvard University

Abstract

Though economists have long recognized and emphasized that GDP by itself is not a measure of societal well-being, most alternatives and adjustments to GDP incorporate direct measures of economic performance. We propose instead an independently constructed measure, a social progress index, that focuses exclusively on non-economic dimensions that are well established as fundamental to societal performance. The construction of a social progress index allows for direct comparison between measures of subjective well-being and economic performance with social performance, both across and within countries. Building on a diverse range of prior work emphasizing the conditions giving rise to improving human capability and functioning, we focus on measuring three core dimensions of social progress: basic human needs, foundations of well-being, and opportunity. Each of these dimensions can be constructed using publicly available measures for a wide range of countries. Our analysis focuses on the interplay between these dimensions of social progress, holistic measures of subjective well-being, and economic metrics such as personal income and GDP. GDP and social progress are correlated but distinct. The dimension of social progress least related to GDP, Opportunity, is strongly related to subjective well-being. The relationship between social progress and well-being is greater for individuals at a lower level of income and educational attainment, but does not depend on gender.

Using Online Prices for Measuring Real Consumption Across Countries

Alberto Cavallo
,
Massachusetts Institute of Technology
W. Erwin Diewert
,
University of British Columbia
Robert Feenstra
,
University of California-Davis
Robert Inklaar
,
University of Groningen
Marcel Timmer
,
University of Groningen

Abstract

This paper explores the use of online prices from the Billion Prices Project to measure purchasing power parities (PPPs) and real consumption at a much higher frequency than is currently possible with traditional data collection methods. PPPs are price-level ratios used to convert income and poverty lines into a common currency (US dollars) and are a fundamental element of the cross-country comparisons and statistics in the Penn World Tables (PWT), one of the most widely used databases in economics. PPPs are currently calculated by the World Bank though a labor-intensive process of data collection called the International Comparisons Project (ICP). Because it involves actual visit to stores in so many countries, the ICP can collect prices only at infrequent years (the most recent years were 2005 and 2011, with another collection planned for 2017). By contrast, prices collected online can increase the frequency of PPPs to monthly observations, eliminating the need for interpolations methods with CPIs. In addition, online prices have several other potential advantages, including lower cost of data collection, more details and varieties per product, and the ability to immediately detect product entries and exits. Our paper explores the opportunities and challenges of online prices, as an example of "Big Data", along some of these dimensions. We also provide comparisons to results obtained in the 2011 ICP round and with CPI interpolations. The results are valuable for the World Bank and other international agencies engaged in measuring real GDP and extreme poverty; for the work of academics engaged in the PWT; and for scholars who rely on the PWT from Economics, Political Science, and other disciplines

Internet Rising, Prices Falling

Austan Goolsbee
,
University of Chicago
Pete Klenow
,
Stanford University

Abstract

E-commerce is soaring as a share of retail activity in the U.S.  We use transactions-level data from Adobe Analytics to analyze inflation online vs. offline. Online inflation from 2014-2017 period averaged about 100 basis points lower than inflation in the CPI for the same categories. Entry and exit of new product varieties is extremely important in most online categories (but less so in food and grocery). Data on quantities is particularly important because the entry and exit rates vary with product sales. The increased variety of products sold online implies an additional 100 basis points of lower inflation than in the matched model/CPI style indices.
Discussant(s)
Hal Varian
,
Google and University of California-Berkeley
Betsey Stevenson
,
University of Michigan
Charles Hulten
,
University of Maryland-College Park
Dennis Fixler
,
U.S. Bureau of Economic Analysis
JEL Classifications
  • O0 - General
  • I3 - Welfare, Well-Being, and Poverty