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The Initiative on the Digital Economy is committed to breaking new ground in the study of the digital revolution and its profound impact on society, work, and the economy. We are developing a constant stream of research results on critical topics, organized around our four key pillars, or subject areas:

  • Productivity, Employment, and Inequality  
  • New Digital Business Models  
  • Big Data  
  • Social Analytics  


The Attention Economy: Measuring the Value of Free Goods on the Internet
Professor Erik Brynjolfsson and Dr. JooHee Oh

Over the past decade, there has been an explosion of digital services on the Internet, from Google and Wikipedia to Facebook and YouTube. However, the value of these innovations is difficult to quantify, because consumers pay nothing to use them. Traditional approaches based on measuring prices and quantities do not work well for goods with zero price. In this project, we develop a framework to estimate the value of consuming information goods on the Internet that is not measured in the traditional money-based measure of GDP. Our model of the “attention economy” yields an estimate of annual change in the value of online applications that have very low prices using the insight that even when people do not pay cash, they must still pay “attention,” or time. We estimate the increase in consumer surplus created by free internet services to be over $30 billion per year in the U.S. alone, about 0.23% of average annual GDP during the period of 2002-2011. We apply our methods to television and estimate that the level of consumer surplus from television is more than three times larger, but the annual increase is comparable to the increase in surplus from the Internet. Our analysis implies that most of welfare gain from digital services on the Internet would be overlooked by traditional approaches that rely only on the direct expenditures of money. Considering the time spent on consumption, as we do, makes it possible to assess the full value of these digital innovations.

User Investment and Firm Value: Case of Internet Firms
Professor Erik Brynjolfsson, Dr. Seon Tae Kim, and Dr. JooHee Oh

This project quantifies business implications of the recent rapid growth of the amount of users’ online activities. Users collectively spend billions of person-hours creating user generated content which then becomes an asset that produces a stream of value for fellow users, and of course, the host site itself, labeled as user generated capital. This fact has important implications for business strategies and values of Internet companies because growth opportunities of many Internet firms are determined largely by the user activities, in particular, the users’ investment of their valuable content and time. The relationship between the amount of users’ online activities and an Internet firm’s value has been, even though a popular topic discussed in press or in policy debates, under-studied in the academic literature and is studied both empirically and theoretically in this project. More specifically, we focus on addressing three questions: (i) what is the mechanism of user generated capital itself, (ii) what is the consequence of user generated capital for an Internet firm’s value, and (iii) what are the Internet firm's optimal strategies to manage user generated capital. For such a purpose, we document facts on the relationship between an Internet firm's market value and its tangible and intangible capital and the amount of users' online activities. Then we study them in a dynamic general equilibrium model of the user's time-allocation between online and offline activities. This project aims to enhance understanding of intangible capital more broadly by studying a particular class of intangibles, user generated capital.

Digital Technologies and Their Impact on the Earnings Prospects of American Workers
Professor Erik Brynjolfsson and Dr. Andrew McAfee
Sponsor: Markle Foundation

This project focuses on an under-studied yet critical issue: the impact of digital technologies on the earnings prospects of American workers. The effects of the Great Recession, globalization and outsourcing, education, and many other factors have been extensively studied. Computerization, meanwhile, has received less attention. There is general agreement that technology often favors more highly skilled and educated workers. There is also a widely shared view among economists that the Luddites were wrong, and that more technology will not lead to fewer jobs. The research supporting these conclusions, however, was conducted before the Great Recession gave way to a dismayingly jobless recovery; before computers started displaying science-fiction abilities like driving cars, writing clean prose, and beating the best human contestants on Jeopardy!; and before the rise of crowdsourcing problems ranging from Innocentive to TaskRabbit to Amazon Mechanical Turk. Research, in short, has not kept up with by recent developments. It needs to be brought up to date because technology's impact on the workforce is certainly large, but poorly understood at present. The broad vision of this 3-year grant is to consider and utilize quantitative and qualitative studies that will inform us on digital technology trends and their impact on the earnings prospects of American workers.

Toward Achieving Abu Dhabi Economic Vision 2030: The Role of Advanced Technology and Automation
Professor Erik Brynjolfsson and Dr. Yousef Alhammadi
Sponsor: Masdar Institute

Previous research studies demonstrated the dynamics (jobs created or lost) that link the technology advancement (in IT, robotics, factory automation, etc.) with the job market in terms of its quality (type of jobs) and quantity (number of jobs). It is clear that automated tools can perform several job tasks, especially those of a repetitive nature that require high levels of technical skill yet are operator-independent, easily and quickly. At the same time, physical jobs with less repetition are harder to automate. However, the employment trends from the last decade blurred this distinction. For example, in the United States after the 2008 recession, the increase in GDP and firms’ revenues was accompanied by a decrease in the number of jobs created. This new dynamic challenges legislators and economists’ effort to sustain a positive job creation trend. This proposal will address the pros and cons of automation in a pedagogical method. The objective is to establish a set of metrics that are based on well-established surveys and case studies. While considering the Abu Dhabi 2030 vision, the objective of this work is to establish tertiary calcification of industry where automation is a must, lucrative and avoidable. This proposal will have specific consideration of the different industries and their subsidiaries including aerospace, semiconductors, and construction. The specific goal of proposed research is two-fold: (1) re-examining the job market dynamics in general, and, more specifically, in Abu-Dhabi, for the coming decade, for highly automated job tasks. This can be analyzed within different industrial sectors including strategic industries (such as oil and gas), knowledge-intensive industries (e.g., aerospace), labor-intensive industries such as construction and civil infrastructure; the governmental sector; or the renewable energy sector (2) Quantifying the economic gains and the accompanying socioeconomic effects, under different designed scenarios. The ultimate goal of this research is to consolidate the study findings into a balanced roadmap to manage the newly established job-market dynamics as applicable to Abu Dhabi. The research will be multifaceted and will explore legislation, technical solutions, and business models to encourage economic growth, job creation and technological advancement, in addition to attracting and incubating entrepreneurial ideas.

Anatomy of Copyright Value: the Case of YouTube
Dr. JooHee Oh

User generated content is exploding online, highlighting some of the emerging issues for copyright. In this project, I propose to empirically assess the costs of copyright from limiting the access to the original work and preventing the subsequent creative works at one of the popular user-generated content sites, YouTube. One important aspect of copyright is to promote greater investment in innovative efforts, allowing a creator of original work to profit by reducing supply for a period of time. Inevitably, this raises the question of how much of an increase in creative expression is stimulated by copyright. In particular, research on intellectual property addresses this question of whether the patent system or copyright has accelerated the pace of innovative discovery or creative expression. The theory also predicts that in some cases, the restriction of access to original creative works will leave consumers worse off. In addition, by increasing the cost of new discoveries of expression, copyright can lower the rate of subsequent creative expression. Innovators often build on the innovations and creations of others. Even if copyright stimulates some creative works, the cost to subsequent creators may exceed these benefits. Measuring the value of user-generated content with significant volume and analyzing their influences to copyrighted contents provide a metric to gauge consumers’ interests in creative expression.