David R. Henderson  

Consumer Surplus from the Internet

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Would you give up the Internet for One Million Dollars?

That's the title of a 5-minute YouTube video produced by the Fund for American Studies. There's a lot of good stuff packed into this video plus some apparently contradictory stuff.

First the good:
It's clear that there's a lot of consumer surplus from the Internet. They do it well, but they exaggerate--more on the exaggeration anon.
It's also clear that, as economist Michael Cox puts it, the rich tend to be the first adopters who pay the high prices for the first products and that enough of them doing so takes us down the learning curve so that a huge swath of the population can easily afford the new cell phone, etc.

Second, the apparently contradictory stuff:
After asserting that someone would have to pay them over a million dollars to give up the internet because it is so integrated into their lives, some of those same people say absolutely no way would they be willing to pay $4,000 for a cell phone. See the apparent contradiction? I say "apparent" because there are two ways out:
1. Huge wealth endowment effects. They're not wealthy enough to value the thing at $4k but they could still rationally insist on being paid over $1 million to give it up.
2. The question was about what they would pay for one part of the internet--a cell phone--not for the whole internet.
Still, I think this part is more of a tribute to people's innumeracy than it is an indicator of consumer surplus. There's huge consumer surplus from the Internet but the people interviewed seemed to give out numbers with little thought.

Still, the question is a good one and I'll try to frame it more carefully:
How much would you have to be paid, not just for you to give up the internet, but for the internet to disappear? (Why do I distinguish between your giving it up and the whole thing being gone? Because, of course, as the video points out, you get huge consumer surplus from producers' use of the internet.)

For more on consumer surplus, see here, here, here, and here.

HT to Dan Klein.


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COMMENTS (12 to date)
Brian Moore writes:

I wouldn't take 1 million to give up the internet for myself, as my employment and most of my entertainment consumption are internet-oriented, and my value of them across my lifetime is much higher than 1 million.

And to give up the internet for everyone? I'd have to get so much money as to make it so I could live like a king for the rest of my life, and given the damage "no internet" would do to the economy, I'm not sure living like a king would even be worth it.

steve writes:

Hard for me to say what the minimum I would take is, but I am pretty sure 1 million would do it.

Floccina writes:

I am pretty sure that I would pay $300/month (and maybe $400/month) to get internet at home if I had to. Instead I get it for $40/month.

PrometheeFeu writes:

I would definitely not take $1 million to give up on the internet. In fact to be completely honest I have a hard time imagining getting paid enough to give up on the internet simply because if I had a huge sum of money, I would want to spend large chunks of it on internet-related stuff. (If anything on internet-related leisure)

You're forgetting one alternative though: status-quo bias. I know this is often seen as irrational, but I think that's a mistake. Status quo bias is very rational if you perceive your current situation as being above average. Any change involves some amount of chance that you will fall below your current situation. When you combine that with high risk-adversity, you get a perfectly rational status-quo bias.

Mark writes:

No internet, no job but it would take decades to make a million dollars working so I would be inclined to give up the internet. Fifteen years ago I wasn't on the internet so I think I can survive without it today.

PrometheeFeu writes:

I would say that most counter-factual price questions (would you be willing to pay X for this thing which right now costs a fraction of X) are not going to be very indicative of actual behavior. The way we make our decisions is by keeping in our heads a fairly complex model of the world which includes current prices. I doubt many people are able to change a single thing and ripple the effects through their mental model. Of course I won't buy a $4,000 cellphone from 1960, I can buy an Android phone today for $150. Or I can use Skype for free, or I can just email my friends etc...

Brian writes:

File under "utility functions are concave".

David R. Henderson writes:

@Brian,
If you draw that utility function, you probably won't believe it.

Zac Gochenour writes:

For me, the number is definitely above a mil and definitely below a billion, but I'm not sure where. The internet is extremely valuable to me, and I'm not sure what I'd do with all the leisure I could buy if I didn't have the internet. I'd be isolated and depressed without access to almost any of my hobbies and interests. It would have to be enough money that would make it worth completely reinventing my life. It's a difficult hypothetical.

Granite26 writes:

I feel like this question is equivilent to 'how much would you need to get paid to be forced to live in the 80's.'

There are a few quibilable differences, but for a mental picture, I think it works.

mike shupp writes:

Let me play maniac here. I'd have to be paid quite a lot to give up the internet personally; I spend a lot of time on it, showing it has entertainment value if nothing else. I'd fear the consequence of being deprived of what might be extremely valuable in unforeseen circumstances -- news coverage if hostile Martians arrived, for example. And there's the cost of foregone pleasures no longer easily available without internet access, such as up-to-the-minute weather forcasts and discursive book reviews and scientific papers and silly pictures of cats.

Other hand... what might I want to give up the internet for EVERYONE? Not so much actually, because we'd all be back on an equal standing then. The Saturday Review of Literature might reappear, and the Saturday Evening Post, and there'd be 16 different science fiction magazines to subscribe to, and little magazines focusing on jazz and socialist politics and maybe the nightly news broadcasts would improve and newspapers would be thick enough to line birdcages with again and .... Not so much.

But I won't attempt to give dollar figures.

Mark writes:

I am surprised anyone was allowed to post that they would give up the internet for a million bucks because that implies that econlog isn't worth a million dollars! I think papers and magazines would regress without the internet to prod them. I follow sports and when I see a somewhat obscure rumor on the net I figure sooner or later the local paper will have to get to the bottom of it. Before the internet, they didn't have to bother. For all the typing about the glories of the internet, entertainment seems to be the biggest reason people would not take the money. Come on people, you just received a million dollars! Travel, movies, concerts, plays, hunting, fishing, books and a million other things can all be done without the net.
As far as society giving up the net, that is a more interesting question. Obviously, the internet brings many positive but professionalism isn't one of them. So many times I see someone reading unrelated items on the net at work, it makes me wonder how much more productive we actually are.

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