Economics of Digitization

March 3, 2017
Shane Greenstein and Josh Lerner of Harvard University, and Scott Stern of MIT, Organizers

Barbara Biasi, Stanford University, and Petra Moser, New York University and NBER

Effects of Copyrights on Science: Evidence from the WWII Book Republication Program

This paper investigates how copyrights influence science, through their impact on the price of knowledge. In 1942, the US Book Republication Program (BRP) allowed U.S. publishers to reprint German science books, leading to a 25 percent decline in price. Using two independent identification strategies, Biasi and Moser show that this change increased citations to BRP books. Effects of price are more pronounced for human (rather than physical) capital-intensive disciplines. Geographic data on library holdings suggest that lower prices promoted science by enabling more and poorer libraries to buy BRP books. Two alternative measures of scientific output — new PhDs and patents — confirm the main results.

Joan Calzada, Universitat de Barcelona, and Ricard Gil, Johns Hopkins University

What Do News Aggregators Do? Evidence from Google News in Spain and Germany

The impact of aggregators on news outlets is ambiguous. In particular, the existing theoretical literature highlights that although aggregators create a market expansion effect when they bring visitors to news outlets, they also generate a substitution effect if some visitors switch from the news outlets to the aggregators. Using the shutdown of the Spanish edition of Google News in December of 2014 and difference-in-differences methodology, this paper empirically examines the relevance of these two effects. Calzada and Gil show the shutdown of Google News in Spain decreased the number of daily visits to Spanish news outlets by 11%, and that this effect was larger in sports outlets than in national and regional outlets. The researchers then analyze the effect of the opt-in policy adopted by the German edition of Google News in October of 2014. Although such policy did not significantly affect the daily visits of all outlets that opted out, it reduced by 7% the number of visits of the outlets controlled by the publisher Axel Springer. The results demonstrate the existence of a market-expansion effect through which news aggregators increase consumers' awareness of news outlets' contents, thereby increasing their number of visits. The researchers find no evidence of a substitution effect in their two empirical settings.

Thomas Blake and Kane Sweeney, eBay Research Labs; Sarah Moshary, the University of Pennsylvania; and Steven Tadelis, the University of California at Berkeley and NBER

Price Salience and Product Choice

Blake, Moshary, Sweeney, and Tadelis study the effect of price salience on product choice along two dimensions: whether a good is purchased and, conditional on purchase, the kind of good purchased. Consistent with their theoretical predictions, they find that making the full purchase price salient to consumers reduces both the quality and quantity of goods purchased. The effect of salience on quality is approximately half the size of the effect on quantity.

Erik Brynjolfsson, MIT and NBER; Felix Eggers, the University of Groningen; and Avinash Gannamaneni, MIT

Using Massive Online Choice Experiments to Measure Changes in Well-being

GDP and metrics derived from it, like productivity, have been central to our understanding of economic progress. In principle, changes in consumer surplus (compensating expenditure) provide a superior measure of changes in consumer well-being, especially for digital goods. In practice, consumer surplus has been difficult to measure. Brynjolfsson, Eggers, and Gannamaneni explore the potential for massively scalable online Single Binary Discrete Choice experiments. These experiments seek to measure consumers' willingness to accept compensation for losing access to various digital goods and thereby estimate the changes in consumer surplus from these goods. These results indicate that digital goods have created enormous gains in well-being which are largely missed by conventional measure of GDP and productivity, and suggest that the researchers' approach can be scaled up to a broader set of goods and services. Two limitations of their methods are that they are much less precise than changes in GDP and they suffer from hypothetical bias. The researchers show how much of an improvement in precision can be achieved with larger sample sizes and various demographic controls and they document the direction and magnitude of bias present in their approach by conducting incentive compatible studies. By periodically querying a large, representative sample of goods and services, including those which are not priced in existing markets, changes in consumer surplus and other new measures of well-being derived from these online choice experiments have the potential for providing cost-effective supplements to existing national income and product accounts.

Ben Shiller, Brandeis University, Joel Waldfogel, the University of Minnesota and NBER, and Johnny Ryan, PageFair

Will Ad Blocking Break the Internet? (NBER Working Papers No. 23058)

Ad blockers allow Internet users to obtain information without generating ad revenue for site owners; and by 2016 they were used by roughly a quarter of site visitors. Given the ad-supported nature of much of the web, ad blocking poses a threat to site revenue and, if revenue losses undermine investment, a possible threat to consumers' access to appealing content. Using unique, proprietary, and site-specific data on the share of site visitors using ad blockers at a few thousand sites, along with Alexa traffic data, Shiller, Waldfogel, and Ryan explore the impact of ad blocker usage on site quality, as inferred from traffic ranks, 2013-2016. They find that each additional percentage point of site visitors using ad blockers raises (worsens) its traffic rank by about 0.6 percent over a 35 month period, with stronger effects at initially worse-ranked sites. The researchers provide additional evidence of causality by showing that the relationship between traffic trends and eventual ad blocking does not predate ad blocking. Plausible instruments for ad blocking also deliver consistent results. Effects of ad blocking on revenue are compounded by the fact that ad blocking reduces visits, while also generating less revenue from remaining visitors employing ad blockers. The researchers conclude that ad blocking poses a substantial threat to the ad-supported web.

Shawn Cole, Harvard University and NBER, and A. Nilesh Fernando, the University of Notre Dame

'Mobile'izing Agricultural Advice: Technology Adoption, Diffusion and Sustainability

Cole and Fernando examine the role of management in agricultural productivity, by evaluating a mobile-phone based agricultural advice service provided to farmers in India. Demand for advice is high; and advice changes practices, increasing yields in cumin (28%) and cotton (8.6%, for a sub-group receiving reminders). Information spreads, as non-treated farmers with more treated peers change practices and lose less to pest attacks. Though willingness to pay for the service is low, the value of the information externality exceeds the subsidy that would be necessary to operate the service. The researchers estimate each dollar spent on the service yields a $10 private return.

Susan Feng Lu, Purdue University, and Huaxia Rui and Abraham Seidmann, the University of Rochester

Does Technology Substitute for Nurses? Staffing Decisions in Nursing Homes

Over the past ten years, many health care organizations have made significant investments in automating their clinical operations, mostly through the introduction of advanced information systems. Yet the impact of these investments on staffing is still not well understood. In this paper, Lu, Rui, and Seidmann study the effect of IT-enabled automation on staffing decisions in healthcare facilities. Using unique nursing home IT data from 2006 to 2012, the researchers find that the licensed nurse staffing level decreases by 5.8% in high-end nursing homes but increases by 7.6% in low-end homes after the adoption of automation technology. The researchers explain this by analyzing the interplay of two competing effects of automation: the substitution of technology for labor and the leveraging of complementarity between technology and labor. They also find that increased automation improves the ratings on clinical quality by 6.9% and decreases admissions of less profitable residents by 14.7% on average. These observations are consistent with the predictions of an analytical staffing model that incorporates technology adoption and vertical differentiation. Overall, these findings suggest that the impact of automation technology on staffing decisions depends crucially on a facility's vertical position in the local marketplace.

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