Capturing Free Services in Canada
Over the past two decades, the internet has revolutionized almost every aspect of life in Canada, from how we communicate to how we learn and entertain ourselves. As peoples’ daily lives move increasingly online, there is a growing body of literature studying the value that internet users place on the services they access digitally.
One angle of study pertains to the use of free online services, many of which serve as substitutes for paid goods and services (free streaming content, for instance, is a substitute for conventional television broadcasting; online mapping applications substitute for paper maps; etc.). Digital services can capture larger market shares when they offer their services free of charge, and instead cover their costs using advertising revenue rather than charging a price to users.
This has led to what some economists call the “vanishing productivity problem”. When a good or service has no market price, accounting for it in conventional economic measurements of GDP becomes a problem, as it requires a positive price to express economic activity in dollars. Therefore, when more consumption of services is free rather than paid, that economic activity is not recorded at all by conventional means. As a result, economic productivity and growth in affected sectors appears to “vanish”.
Economists in many countries have been studying the vanishing productivity problem, and have developed a variety of methods to describe and measure the scale of free services in the economy. One such method involves directly asking people how much they value the free online services that they use.
To reduce the amount of bias and subjectivity in conducting such a survey, our team seeks to replicate the work of MIT economist Erik Brynjolfsson, and ask the question “Would you give up (a service) for one month in exchange for $X dollars?”, where X is a random value for each respondent. Asking questions about the value of free services in this way reduces individual bias in responses, and considering responses across the population gives us a proxy for the median value that the average Canadian would place on a given service.
Although the value derived from this method is not exactly the same as the value the service would sell for on the market, we can use these values to estimate the overall value of free services in the economy, as well as track the value of free services over time, giving us an indication of the relative importance of services such as social media, information gathering services, and others.
Our project hopes to fill this important data gap regarding Canada’s digital economy, and to expand the scope of ongoing research on the digital economy at Statistics Canada. In pursuing this project as part of the Treasury Board of Canada Secretariat’s Experimentation Works program, we hope that we can make headway on this topic to better provide informative and relevant data to Canadians.
***
Post by David Wavrock and Roobina Keshishbanoosy, both from Statistics Canada.
Article également disponible en français ici : Recensement des services gratuits au Canada | par L’expérimentation à l’œuvre | Juin, 2021 | Medium
