S3 Ep34: Valuing digital services

Episode Summary

Executive Summary: The episode examines a UK lockdown study by Diane Coyle and David Noyan that uses contingent valuation to estimate how COVID-19 changed the perceived value of free online and offline services. It finds sharp rises for online grocery shopping, learning, communication, and streaming, and declines for commuting- and work-related tools, while urging caution about treating these numbers as literal GDP add-ons.

Main Topics: Why value free digital services? (Priority: 5/5): The discussion centers on how to measure the value of services people use for free, such as search, maps, and social media, and whether such benefits should be reflected in economic statistics. Method: contingent valuation and survey design (Priority: 5/5): Coyle explains using willingness-to-accept surveys and careful question framing to estimate non-market value, while acknowledging bias, framing effects, and strategic responses. Lockdown as a natural experiment (Priority: 5/5): The UK lockdown created a before-and-after setting that allowed the researchers to compare valuations in late February and mid-May and infer how restrictions changed preferences. Which services became more valuable (Priority: 4/5): Valuations rose for online grocery shopping, online learning, communication platforms, streaming, mobile gaming, and even some offline goods like parks and TV sets. Which services lost value (Priority: 4/5): Commuting-related and work-related services such as maps, ride-hailing, Twitter, LinkedIn, cinema, radio, Spotify, and printed newspapers generally saw lower valuations. Differences across age, class, and gender (Priority: 4/5): The survey revealed varied responses by demographic group, including stronger gains among older users for online shopping and distinctive gender patterns in social media and video platforms. Policy and GDP implications (Priority: 5/5): The guests argue the study supports broader thinking about consumer surplus, competition policy, and how national accounts should treat free goods and environmental amenities, but not simple aggregation into GDP.

Key Arguments: Free digital services have real economic value even though they are not directly priced or counted in GDP. Contingent valuation is a useful but imperfect method because responses are sensitive to wording and framing. Lockdown provided a credible natural experiment that produced plausible shifts in valuations consistent with expected behavior. The biggest increases in value were for services that substituted for constrained offline activities, especially shopping, learning, communication, and entertainment. Some services declined in value because commuting, travel, and work patterns changed dramatically during lockdown. Demographic variation matters: younger people generally value digital services more, while older groups showed especially large gains in online shopping. The results should not be summed into a single GDP-like number because interdependencies between services are not well understood. Even if the exact magnitudes are uncertain, the growth rates and relative changes are informative for policy. Policy should consider market power and competition in digital platforms because people place high value on these services and disruption should be cautious. The same logic applies to other non-market goods like parks and clean air, which conventional statistics currently record as zero value.

Data Points: Baseline survey size: around 10,000 adults - Great Britain baseline survey at the end of February, before UK lockdown Total survey scope: around 30 goods and services - Included both digital and non-digital services to compare valuations UK lockdown start: 23 March - Referenced as the onset of lockdown in the UK Italy lockdown start: 9 March - Used as regional context for the pandemic timeline Time periods compared: end of February vs mid-May - Before-lockdown and during-lockdown survey waves Online learning valuation change: increased more than 400% - Reported for grade D respondents Online shopping change by age: significantly more for those above 50, especially above 65 - Older age groups showed the biggest increase in online shopping valuations Facebook valuation by age: increased significantly for those above 65 and those below 25 - Age-based change in social media valuation during lockdown

Pivotal Quotes: "we shouldn't interpret the overall magnitude of the valuations" — Diane Coyle: Cautioning against treating contingent valuation numbers as literal or fully anchored economic measures "people do value quite highly these kinds of free services" — Diane Coyle: Explaining the policy relevance of the study despite methodological cautions "having a number for some of these services is better than a zero, which is what we use at the moment" — Diane Coyle: Arguing that non-market goods should not be ignored in economic statistics

Implications: Lockdown appears to have increased reliance on and willingness to value digital services, strengthening the case for better measurement, competition oversight, and broader national accounts that recognize free online and environmental goods.