What is Facebook worth to you?

Last year, I wrote a post about a research paper by Erik Brynjolfsson (MIT) et al., which estimated the consumer surplus generated by Facebook. The authors used non-market valuation techniques - essentially, they asked people how much money they would accept to give up Facebook for a month. The average was $48.49 in 2016, which decreased to $37.76 in 2017.

That was just one estimate though, so before we accept it, it should be replicable. I just read this 2018 paper, by Jay Corrigan (Kenyon College), Saleem Alhabash (Michigan State University), Matthew Rousu (Susquehanna University), and Sean Cash (Tufts University), published in the open access journal PLoS ONE. They use four different samples to estimate what people would be willing to aceept to give up Facebook for differing time periods, between one hour and one year. For three of the samples, they are able to enforce the choice (otherwise, the participant wouldn't be paid). Since consumer surplus is the difference between what a person would be willing to pay for the good or service (or what they would be willing to accept to give it up), and what they actually pay (which in this case is zero), the willingness-to-accept is a measure of consumer surplus.

Converting the estimates from the various samples, with different timeframes, to the equivalent value for a year, Corrigan et al. find the following:

The results are reasonably consistent across the different samples. The first three columns are scaled up from the willingness-to-accept to give up Facebook for one day, three days, and one week respectively, while the last three columns are willingness-to-accept to give up Facebook for a year, for three different samples (a student sample, a community sample, and an online sample). The results are much larger than those of Brynjolfsson (MIT) et al., whose estimates imply an annual value of less than US$600. Clearly, there is more to do in this space.

The estimate of the value provided by Facebook isn't just a fanciful exercise. Goods and services that are provided to consumers for 'free', such as Facebook and other social networks, search engines, video sites like YouTube, and blogs, as well as the increasing phenomenon of 'free' online games like Fortnite, present a bit of a problem for estimating aggregate economic output. The traditional measure of aggregate output, GDP, measures the total value of all goods and services produced, based on their market prices. If the market price is zero, then there is zero contribution to GDP. And yet, these services obviously generate substantial value for society (otherwise, people wouldn't be willing to accept such a high value before they would give them up). Corrigan et al. estimate that:

...across all three samples, the mean bid to deactivate Facebook for a year exceeded $1,000. Even the most conservative of these mean [Willingness-to-Accept] estimates, if applied to Facebook’s 214 million U.S. users, suggests an annual value of over $240 billion to users.

We already know that GDP is not a good measure of societal wellbeing. However, the increasing prevalence of free goods and services is making GDP even worse as a measure over time. We need to find an alternative measure of wellbeing, but it isn't clear at this point what such a measure would be.

[HT: Marginal Revolution, late last year]

Read more:

• How much money would you accept to give up Facebook for a month?