Economics

How Should We Measure the Digital Economy?

Focus on the value created, not just the prices paid.

by

Erik Brynjolfsson

and

Avinash Collis

by

Erik Brynjolfsson

and

Avinash Collis

From the Magazine (November–December 2019) · Long read

Nick Smith

Summary.

Digital media consumes a large and growing share of our waking lives, but these goods and services go largely uncounted in GDP. That’s because the measure is based on what people pay for goods and services. If something has a price of zero, then it typically contributes zero to GDP.

Policy makers use GDP data to make decisions about how to invest in everything from infrastructure and R&D to education and cyberdefense, and regulators use economic data to set policy. Because the benefits of digitization are dramatically underestimated, those decisions and policies are being made with a poor understanding of reality.

GDP-B is an alternate metric that supplements the traditional GDP framework by quantifying contributions to consumer well-being from new and free goods.

Idea in Brief

The Problem

Though we spend a large and growing share of our waking lives online, digital goods and services go largely uncounted in GDP. That’s because the measure is based on what people pay for goods and services. If something has a price of zero, then it typically contributes zero to GDP.

The Impact

Policy makers use GDP data to make decisions about how to invest in everything from infrastructure and R&D to education and cyberdefense. Regulators use it to set policy that affects technology and other firms. Because the benefits of digitization are dramatically underestimated, those decisions and policies are being made with a poor understanding of reality.

A New Approach

GDP-B is an alternative metric that supplements the traditional GDP framework by quantifying contributions to consumer well-being from free goods.

Suppose we make you an offer. You give up access to Google search for one month, and we pay you $10. No? How about $100? $1,000? What would we need to pay you to forgo access to Wikipedia? Your answer can help us understand the value of the digital economy.

A version of this article appeared in the November–December 2019 issue of Harvard Business Review.

Erik Brynjolfsson is the director of the Stanford Digital Economy Lab, a professor at the Stanford Institute for Human-Centered AI, a research associate at the National Bureau of Economic Research, and a cofounder of Workhelix, which creates generative AI strategies and implementation plans for companies.
AC

Avinash Collis is a doctoral candidate at the MIT Sloan School of Management and a researcher at the MIT Initiative on the Digital Economy.

How Should We Measure the Digital Economy?

Idea in Brief

The Problem

The Impact

A New Approach

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