Digital welfare and economic inequality
Erik Brynjolfsson et al. explore the impact of digital goods on consumer welfare and inequality across 13 countries ( United States, Canada, Mexico, Germany, United Kingdom, Ireland, France, Belgium, Norway, Spain, Romania, Japan, and Korea). The study uses large-scale incentivized online choice experiments with nearly 40,000 participants to measure the welfare gains from 10 popular digital goods, many of which are free to users. Key findings include:
- Welfare Gains: The digital goods studied generate over $2.5 trillion in aggregate consumer welfare annually across the 13 countries, which is roughly equivalent to 6% of their combined GDP. This suggests that conventional GDP measures may underestimate economic growth due to the unaccounted value of digital goods.
- Inequality Reduction: Lower-income individuals and countries gain relatively more welfare from these digital goods compared to higher-income counterparts. This indicates that digital goods can reduce welfare inequality by disproportionately benefiting lower-income groups.
- Country-Specific Findings: The welfare gains from digital goods vary across countries, with the U.S. seeing the highest aggregate annual value. The study also found a negative correlation between a country’s GDP per capita and the welfare gains from digital goods as a percentage of GDP per capita, suggesting that digital goods are more valuable relative to income in lower-income countries.
- Within-Country Inequality: The research found that the value derived from digital goods does not significantly vary by income level or education within countries, implying that these goods contribute to reducing welfare inequality within countries as well.
Overall, the paper highlights the substantial yet often overlooked economic value of digital goods and their potential role in reducing inequality both within and across nations.
The Digital Welfare of Nations: New Measures of Welfare Gains and Inequality
Authors: Erik Brynjolfsson, Avinash Collis, Asad Liaqat, Daley Kutzman, Haritz Garro, Daniel Deisenroth, Nils Wernerfelt, Jae Joon Lee
From: Stanford Digital Economy Laboratory, Carnegie Mellon University, Meta, Kellogg School of Management
Social welfare and economic inequality
François Le Grand, Xavier Ragot, and Diego Rodrigues present a theoretical framework for understanding how social preferences influence fiscal policy and economic inequality in different countries, specifically focusing on France and the United States. The authors develop a Bewley-type theory of the Social Welfare Function (SWF), where individual welfare functions, shaped by personal experiences, are aggregated to form a collective SWF. This SWF is used to analyze fiscal policies and their impact on inequality.
- Comparison between France and the United States: The study finds significant differences in the SWFs of France and the US. France’s SWF places more emphasis on low-income individuals, while the US SWF favors higher-income individuals. This difference in social preferences is reflected in their respective fiscal systems and levels of inequality.
- Fiscal System Simulation: By simulating the US fiscal system using the French SWF, the researchers found that the Gini coefficient of wealth in the US would decrease significantly, indicating a potential reduction in inequality if the US adopted a more egalitarian approach similar to France.
- Implications for Policy: The findings suggest that social preferences, as captured by the SWF, are a primary driver of fiscal policy and economic inequality. The study highlights the importance of understanding these preferences to design effective fiscal policies that address inequality.
The Welfare of Nations: Social Preferences and the Macroeconomy
Authors: François Le Grand, Xavier Ragot, Diego Rodrigues
From: Rennes School of Business, Sciences Po
