The Sharing Economy by Arun Sundararajan

Author:Arun Sundararajan [Sundararajan, Arun]
Language: eng
Format: epub
ISBN: 9780262034579
Publisher: MIT Press
Published: 2016-04-21T18:54:09+00:00

Additional Measurement Challenges in the Digital Economy

The digitization of the economy exacerbates some of these shortcomings with GDP. Consider the example of measuring the economic impact of search engines like Google. As search engine use has become widespread, consumers have become increasingly empowered—they can make better choices with access to superior information, a larger number of markets, and up-to-date feedback and reviews on products. However, part of the higher quality of one’s consumer experience is often realized as an intangible “better product fit” or by an increase in what economists call “consumer surplus,” which, loosely speaking, measures the difference between the maximum amount the consumer would be willing to pay for a product or service and the actual amount paid. Thus, a big fraction of Google’s impact on the economy isn’t captured since changes in consumer surplus are not reflected in the GDP.

This point has been noted about digital markets more generally. While a conventional brick-and-mortar bookstore may hold 40,000 to 100,000 books, Amazon offers access to over 3 million books. The same expansion in variety holds true for music, movies, electronics, and myriad other products. Furthermore, since Amazon uses several recommender systems to help promote products, it is not just variety but “fit” that has increased.14 Capturing the economic impacts of enhanced variety and automated word-of-mouth promotions, however, is difficult, since once again, what has changed is primarily the quality of the consumer experience. As Erik Brynjolfsson, Yu (Jeffery) Hu, and Michael Smith argue in their study of consumer surplus in the digital economy, these benefits may be particularly difficult to measure because different consumers are impacted to varying degrees. “In effect, the emergence of online retailers places a specialty store and a personalized shopping assistant at every shopper’s desktop. This improves the welfare of these consumers by allowing them to locate and buy specialty products they otherwise would not have purchased due to high transaction costs or low product awareness. This effect will be especially beneficial to those consumers who live in remote areas.”15 Analogous increases in consumer surplus were documented by Anindya Ghose, Rahul Telang and Michael Smith in their 2005 study of electronic markets for used books.16 These effects are exacerbated by a wide variety of recommender systems that use machine learning algorithms to better direct consumer choice. As Alexander Tuzhilin and Gedas Adomavicius document, such systems are ubiquitous in digital markets.17 It is natural to expect similar challenges when, for example, trying to encompass the different economic impacts of increased variety and fit from Airbnb, or increased convenience from Lyft, or Dennis’s increased access to financing on the Isle of Gigha.

A number of studies over the last 15 years have documented changes in consumer surplus that digital technologies create. More recent thinking has started to introduce an additional dimension—of human capital gains that arise from digitization. In this regard, the research of my NYU colleague Prasanna Tambe is particularly instructive. Tambe’s work with Lorin Hitt of the University of Pennsylvania points to an intriguing new

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