A Quality-Adjusted Cost Index for Estimating Future Consumer Surplus from Innovation

David Austin () and Molly Macauley

RFF Working Paper Series from Resources for the Future

Abstract: This paper describes a model for estimating, in a probabilistic framework, expected future consumer surplus from planned new product innovations. The model has been applied to estimations of taxpayer benefits from NASA's New Millenium Program (NMP), which develops new technologies for space science, and to the digital data storage technologies being supported by the Department of Commerce's Advanced Technology Program (ATP). The model uses cost index methods based on consumers' estimated marginal valuation for quality improvements in the technology. Probabilistic values for performance increases are taken from the innovators' own expectations. The analysis reveals the sensitivity of welfare increases to these values, which are assumed to be biased upward. The cost index, when combined with an expected rate of adoption, estimates consumer benefits from the innovation, gross of its research and development costs. Benefits are estimated net of a dynamic baseline defined by the best available substitute technology, which is also assumed to improve over time. Findings are therefore expressed in terms of the economic value of the innovation to consumers, compared to advances that might occur in the absence of the NMP or ATP investments. Illustrative resultsestimated cost indices and 95% confidence boundsare presented for technologies that are expected to improve consumer welfare and for those that, on a quality-adjusted cost basis, are likely to be outperformed by the selected baseline technology.

Date: 1998-07-01
New Economics Papers: this item is included in nep-ino and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.rff.org/RFF/documents/RFF-DP-98-45.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.rff.org/RFF/documents/RFF-DP-98-45.pdf [301 Moved Permanently]--> https://www.rff.org/RFF/documents/RFF-DP-98-45.pdf)

Related works:
Working Paper: A Quality-Adjusted Cost Index for Estimating Future Consumer Surplus from Innovation (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rff:dpaper:dp-98-45

Access Statistics for this paper

More papers in RFF Working Paper Series from Resources for the Future Contact information at EDIRC.
Bibliographic data for series maintained by Resources for the Future ().