Give up Facebook for a month and help economists fix GDP

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(Bloomberg) – Would you give up Facebook for $ 50 a month?

The question that Erik Brynjolfsson from MIT and four co-authors of a new paper asked could help economists find a better measure of the extent to which new, free technologies are changing the economy and our lives. The answer is not surprising.

They estimate that the social network alone could contribute up to 0.11 percentage points to the US gross domestic product per year if it is measured in terms of its benefit to users. The paper was presented at the American Economic Association's annual meeting in San Diego on Saturday.

The paper looks at a broader question from economists: to what extent does technology improve our lives? Traditionally, they answered this question by asking how much different innovations have made us. The answer would be reflected in GDP, an incomplete but reasonable measure of overall well-being.

However, this task becomes more difficult when the technologies that change society are at least free in US dollars, although the authors also agree with the idea that "free" goods and services can have an implicit price.

Because if Facebook, Twitter, GPS map services and a variety of other apps are free on your smartphone, they will not be shown in gross domestic product or in conventional productivity measures – even if they improve our lives and make us more productive.

To solve this, Brynjolfsson and his co-authors first conducted a series of experiments and surveys to find out the monetary value that people associate with certain free goods and services. This enables them to construct an alternative to GDP, which they call GDP-B, not based on actual costs but on the perceived benefits.

Using a representative sample of internet users in the US, an average price of $ 42.17 was calculated when Facebook was abandoned for a month.

Among a separate group of test subjects in the Netherlands who were asked for a handful of free internet-based services, the group WhatsApp, which is owned by Facebook Inc., rated the highest value of € 535.73 for just one month of abstinence. Facebook was next with around 100 euros. Twitter, which uses only a third of the group, was rated at less than 1 euro.

"GDP-B and the related metrics proposed in this paper allow for a more in-depth study of the impact of new and free goods on wellbeing with significant potential policy implications," the authors concluded.

For starters, they said the implied GDP adjustments could "explain the widely documented and controversial slowdown in industrialized country productivity growth since 2004".

Contact the reporter about this story: Christopher Condon in Washington at ccondon4@bloomberg.net

Contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Ros Krasny

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