TY  - JOUR
AU  - Greenstein,Shane M.
AU  - Spiller,Pablo T.
TI  - Estimating the Welfare Effects of Digital Infrastructure
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5770
PY  - 1996
Y2  - September 1996
UR  - http://www.nber.org/papers/w5770
L1  - http://www.nber.org/papers/w5770.pdf
N1  - Author contact info:
Shane Greenstein
The Elinor and Wendell Hobbs Professor
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL  60208-2013
Tel: 847/467-5672
Fax: 847/467-1777
E-Mail: greenstein@kellogg.northwestern.edu

Pablo T. Spiller
University of California
Walter A. Haas School of Business
Faculty Bldg. 593
Berkeley, CA 94720
Tel: 510/642-1502
Fax: 510/642-2826
E-Mail: spiller@haas.berkeley.edu
AB  - While much economic policy presumes that more information infrastructure yields higher economic returns, little empirical work measures the magnitudes of these returns.  We examine investment by local exchange telephone companies in fiber optic cable, ISDN lines and signal seven software, infrastructure which plays an essential role in bringing digital technology to local telephone networks.  We estimate the elasticity of the derived demand for infrastructure investment faced by local exchange companies, controlling for factors such as local economic activity and the political disposition of state regulators.  Our model postulates a regulated profit maximizing local exchange firm and a regulatory agency with predetermined political leanings in favor of consumer prices or firm profits.  The model accounts for variation in state regulation and local economic conditions. In all our estimates we find that consumer demand is sensitive to investment in modern infrastructure, particularly as represented by fiber optic cable.  Our estimates imply that infrastructure investment is responsible for a substantial fraction of the recent growth in consumer surplus and business revenue in local telecommunication services.
ER  -