Friday, August 26, 2005

An Economic Analysis of Economics Blogs: Part II

Bloggers are not paid for the quantity or quality of their entries. Usually, suppliers produce zero when offered a price of zero. Why is the supply curve for blogs different than the supply curve for hotdogs?

One explanation is complementarities. Camera companies may give away free film to sell more cameras. Bloggers may give away their thoughts for free in return for two expected payments. First, we may view this as good advertising for our published academic research. If I impress you with a good blog, you might use Econlit or google scholar to track down some of my formal work. Second, some bloggers may be using their blog entries to signal to journalists that they could offer a good quote on a particular policy issue. In this sense, blogging is a type of advertising that may help reporters cheaply locate the “spice” they are looking for.

Another obvious reason for why bloggers blog and may even invest a fair bit of time at this activity is status. What can a middle aged academic who is not at a top 20 research institution do to raise his visibility? Academic economists rarely go to the library and actually read the American Economic Review or other leading journals. Blogging is a relatively cheap way to reach others. Blogs like all ideas are public goods. The Internet offers a zero cost distribution network to billions of people. Somebody out there may even consider some us to be clever and insightful.

How much do people gain from reading economics blogs? Since the price equals zero for accessing everyone’s blogs, we have no way to sketch out a demand curve and measure consumer surplus. In recent years economists such as Hausman have used statistical methods to measure the consumer surplus from new goods such as Cell Phones and HoneyNut Cereals. But putting a dollar value on the benefits of economics blogs would be harder problem to solve.

Blogs and the Grand Canyon are both “non-market” goods. Perhaps surprisingly, it is easier to measure the value of the Grand Canyon because we can use Travel Cost methods. Intuitively, if I see you drive your family from Chicago to the Grand Canyon using $700 in hotel bills and $400 in gas and time spent commuting, then you must value visiting the Canyon by at least $1100. Otherwise, you wouldn’t have chosen to make this trip. If we collected data on how much time different readers spent reading blogs and knew each reader’s value of time (hourly wage), then this information could be used to generate a lower bound on the value of blogs. We need to open up some markets here and see whether people vote their wallets. David Warsh may offer one market test.

David Warsh of Economic Principals is thinking of having a two tiered pricing system where blog readers who have sent him $50 per year gain early access to his weekly columns. It will interest me how many people take him up on this offer. Some leading economics blogs ask readers for contributions. Are economics blog readers free riders? Somebody has to act in accord with economic theory!