The welfare gain to consumers from the introduction of personal computers is estimated here. A simple model of consumer demand is formulated that uses a slightly modified version of standard preferences. The modification permits marginal utility, and hence total utility, to be finite when the consumption of computers is zero, implying that the good won't be consumed at a high enough price. It also bounds the consumer surplus derived from the product. The model is calibrated and estimated using standard national income and product account data. The welfare gain from the introduction of personal computers is in the range of 2 percent to 3 percent of consumption expenditure.
JEL classification: E01, E21, O33, O47
Key words: compensating variation, computers, electricity, equivalent variation, technological progress, Tornqvist price index, welfare gain
This paper is a substantially revised version of NBER working paper no. 13592. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Karen A. Kopecky, Economist, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8974, , or Jeremy Greenwood, Professor, Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104-6297, 215-898-1505.
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