Gross domestic product (GDP) measures production and is not meant to measure well-being. While many people nonetheless use GDP as a proxy for well-being, consumer surplus is a better measure of consumer well-being. This is increasingly true in the digital economy where many digital goods have zero price and as a result the welfare gains from these goods are not reflected in GDP or productivity statistics. We propose a way of directly measuring consumer well-being using massive online choice experiments. We find that digital goods generate a large amount of consumer welfare that is currently not captured in GDP. For example, the median Facebook user needed a compensation of around $48 to give it up for a month.Abstract
Gross domestic product (GDP) and derived metrics such as productivity have been central to our understanding of economic progress and well-being. In principle, changes in consumer surplus provide a superior, and more direct, measure of changes in well-being, especially for digital goods. In practice, these alternatives have been difficult to quantify. We explore the potential of massive online choice experiments to measure consumer surplus. We illustrate this technique via several empirical examples which quantify the valuations of popular digital goods and categories. Our examples include incentive-compatible discrete-choice experiments where online and laboratory participants receive monetary compensation if and only if they forgo goods for predefined periods. For example, the median user needed a compensation of about $48 to forgo Facebook for 1 mo. Our overall analyses reveal that digital goods have created large gains in well-being that are not reflected in conventional measures of GDP and productivity. 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 the existing national income and product accounts.