Stanford University

WORKING PAPER

Measuring the Impact of Free Goods on Real Household Consumption

W. Erwin Diewert

Felix Eggers

Kevin J. Fox

American Economic Association
May 2020

We suggest a methodology that allows statistical agencies to form approximations to the benefits that flow to households from new free goods. The present production-oriented GDP measures are not satisfactory for measuring real household consumption and will be increasingly inaccurate as free goods, such as those made possible by the digital revolution, become more important.

Advertising expenditures are not an adequate substitute for measuring the benefits of new goods to the household sector. Instead, we need to draw on estimates such as those provided by choice experiments.

Stanford University